Edited version of private advice

Authorisation Number: 1051820090807

Date of advice: 29 March 2021

Ruling

Subject: Commissioner's discretion to make an election under paragraph 160ZZL of the Income Tax Assessment Act 1936

Question

Will the Commissioner exercise his discretion under paragraph 160ZZL(1)(d) of the ITAA 1936 and allow further time for you and your spouse to make an election?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 19XX to year ending 30 June 20XX

The scheme commences on:

XX Month 19XX

Relevant facts and circumstances

The trustee of a Trust acquired a property (the Original Asset) on XX Month 19XX.

On XX Month 19XX the property was compulsorily acquired by State AB Commissioner for Highways. In return for the disposal of the property to the State AB Commissioner for Highways, the trustee of the Trust received other properties as a Replacement Asset.

The Replacement Asset was sold in the 20XX income year.

During the period the assets were held there have been no changes to the intended or named specified beneficiaries of the Trust and accordingly at all relevant times there has been no change to the majority underlying interests of the assets of the Trust within the meaning of s160ZZRR(1) ITAA 1936.

Following the sale of the Replacement Asset the trustee of the Trust sought taxation advice to enable the preparation of income tax returns for the Trust for the 20XX income year.

Through the process of obtaining this advice, the directors become aware of the requirement that for the roll-over relief under section 160ZZL of the ITAA 1936 to apply to the compulsory acquisition of the Original Asset pursuant to the Land Swap, The trustee company in its capacity as trustee of the Trust was required to have given notice to the Commissioner of its election that s160ZZL apply to that compulsory acquisition at the time of lodging the Trust's income tax return for the year in which the compulsory acquisition took place.

There are no records to show whether an election was made previously. It appears therefore that the trustee of the Trust at that time did not make an election under paragraph 160ZZL(1)(d) of ITAA 1936 because the trustee at that time was unaware of the requirement to make the election and to provide notice to the Commissioner; and did not turn its governing mind to this requirement as neither the trustee nor the trust was required to lodge an income tax return in the year ending 30 June 19XX.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 160ZZL

Income Tax Assessment Act 1936 paragraph 160ZZL(1)(d)

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 section 103-25

Reasons for decision

Section 160ZZL of the ITAA 1936, provides that a taxpayer may be entitled to rollover relief if they receive an asset (a replacement asset) as compensation for a compulsory acquisition of an asset (the original Asset). This section has been superseded by Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997), however section 160ZZL of the ITAA 1936 was in operation when the replacement asset was received by you.

If a taxpayer elects for this rollover relief to apply and the original asset was acquired before 20 September 1985, the replacement asset shall be deemed to have been acquired before that date.

As per paragraph 160ZZL(1)(d) of the ITAA 1936, the taxpayer is required to give notice to the Commissioner in writing, on or before the date of lodgement of the income tax return for the year in which the disposal took place that they have elected that this section apply in respect of the disposal. The Commissioner may allow further time for the taxpayer to make this election.

There are no legislative provisions or policy which provide guidance as to what the Commissioner may take into account for the purposes of paragraph 160ZZL(1)(d) of the ITAA 1936. The corresponding requirement to provide notice is contained in s103-25 of the ITAA 1997 however under 103-25(2) the way you (and any other entity making the choice) prepare your income tax returns is sufficient evidence of the making of the choice.

In determining whether the Commissioner should allow an extension of time the following factors will be considered:

•         there should be evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension;

•         account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension;

•         account must be had of any unsettling of people, other than the Commissioner, or of established practices;

•         there must be a consideration of fairness to people in like positions and the wider public interest;

•         whether there is any mischief involved; and

•         a consideration of the consequences.

Application to your circumstances

For the Replacement Assets to be deemed to have been acquired prior to 20 September 1985, the trustee of the Trust was required to make an election in writing to the Commissioner at or before the time of lodgement. There are no records to show whether an election was made previously. A request has been made for the Commissioner to allow further time within which to provide the Notice.

You satisfy the other conditions for roll-over relief of an asset received as a result of involuntary disposal under s160ZZL of the ITAA 1936. Following the sale of the Replacement Asset you became aware of the of the requirement that for the roll-over relief under section 160ZZL of the ITAA 1936 to apply to the compulsory acquisition of the Original Asset pursuant to the Land Swap, the trustee company in its capacity as trustee of the Trust was required to have given notice to the Commissioner of its election that s160ZZL apply to that compulsory acquisition at the time of lodging the Trust's income tax return for the year in which the compulsory acquisition took place. It is unclear if notice was originally provided however if it was not provided this is likely because no return was required to be lodged in the disposal year.

If additional time is allowed, there would be no prejudice to the Commissioner, nor would there be any unsettling of people or of established practices. Anyone in a similar position would be able to request a similar extension and there was no mischief involved in the request. The consequence of allowing further time is that you may disregard the capital gain on the recent disposal of property as they can be considered pre-CGT assets.

Having regard to all the circumstances, it is considered reasonable for the Commissioner to allow the trustee of the Trust further time to give notice pursuant to s160ZZL(1)(d) ITAA 1936.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).