Edited version of private advice

Authorisation Number: 1051841974464

Date of advice: 20 May 2021

Ruling

Subject: CGT concessions - extension of time to replace destroyed assets

Question

Will the Commissioner exercise his discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you further time, until 30 June 20XX, to repair or reconstruct destroyed assets?

Answer

Yes. The Commissioner will exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow you until 30 June 20XX to replace the destroyed assets. It is considered that the difficulties in replacing the assets due to the isolation of your business and difficulties in obtaining builders due to increased demand for their services (other disasters and government incentives to building industry)

Further information on the CGT treatment of Involuntary Disposal of CGT assets can be found on our website: ato.gov.au by searching quick code QC17204.

This ruling applies for the following period periods:

Income year ended 30 June 20AA

Income year ended 30 June 20BB

Income year ended 30 June 20CC

Income year ended 30 June 20DD

The scheme commences on:

1 June 20XX

Relevant facts and circumstances

You acquired a business in a remote part of Australia.

The facility was affected by a disaster. The loss of infrastructure caused all business operations to cease for a period. Limited operations have recommenced.

You were insured in the event of business interruption or destruction of assets. You have received insurance proceeds of $A. You expect to receive total insurance proceeds of $B for business interruption and $C for destroyed infrastructure.

You have developed plans to replace the destroyed infrastructure so that more substantial business operations can resume.

You have so far spent approximately $D to repair the remaining structures.

You have experienced delays in reconstructing the business assets because of the following reasons:

•         CCo-owners are either based overseas or spend considerable time there and COVID has restricted their access back to Australia to conduct and manage reconstruction

•         Being remote limits availability of tradespeople to undertake repairs. Many buildings in the area were destroyed further stretching limited resources in construction industry.

•         Your preferred builder has been unable to quote to date and may not be able to for another year.

•         You have been unable to find any tradespeople to undertake the work since the disaster. This has been exacerbated by the lack of accommodation in the area. Historically to keep costs down you have provided accommodation for tradespeople. This type of accommodation was destroyed not only in the vicinity of your site but all over the region where you are located.

•         Availability of tradespeople is also affected since dernand for homebuilding has increased due in part to government incentives such as the Homebuilder scheme and also due to reconstruction needed following other disasters in nearby regions earlier than the disaster that destroyed your business.

•         You operate in a national park and the responsible authority is considering consolidating tourism infrastructure due to disaster risk and how such infrastructure should be built to reduce risk. Any future construction will need to abide by any heightened regulations or updated building standards which will cause a delay in rebuilding the facility.

Relevant legislative provisions

Income Tax Assessment Act 1997 paragraph 124-75(3)(b)

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