Edited version of private advice

Authorisation Number: 1052012769083

Date of advice: 29 July 2022

Ruling

Subject: Extension of time to obtain replacement asset

Question

Will the Commissioner exercise his discretion under subsection 124-75(3) of the Income Tax Assessment 1997 (ITAA 1997) to extend the time required to obtain a replacement asset for a compulsorily acquired asset?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

1.    The Commonwealth of Australia compulsorily acquired (under the Lands Acquisition Act 1989) a portion of the land owned by the company.

2.    A family group have owned the land since 18XX.

3.    In 19XX the lease was transferred to the company.

4.    A right was granted for the company and related entities/individuals to occupy the land until a certain date.

5.    There were businesses operating on the land.

6.    As a result of the acquisition, the taxpayer submitted claims under more than one head of compensation - one for the property which was compulsorily acquired and others relating to the loss of the use of the land by the businesses.

7.    Albeit within the same family group, the land and the businesses are all owned by separate entities. The land and the XX business are ultimately owned by the same family group, and distinctively the XX business is only owned by one side of the family.

8.    The company received the sum of $ XX being an advance on the amount of compensation that may be payable to the company. This amount is undissected between the claims.

9.    The taxpayer has also received a reimbursement of legal and professional costs incurred in preparing the submissions.

10.  Recently, an additional advance of $ XX has been received in relation to the XX claim.

11.  The advances made by the Commonwealth are currently different to the compensation sought by the taxpayer.

12.  Various claims for the compulsorily acquired land and loss of the use of the land have been submitted to the Commonwealth but are yet to be finalised.

13.  Recently, the Commonwealth made a compensation offer under XX. The offer is currently under review by the taxpayer.

14.  The taxpayer's lawyer sent them an email stating that the Commonwealth of Australia have suggested a meeting to progress the negotiations.

15.  The taxpayer is reluctant to commit to the acquisition of a replacement asset until such time as the quantum of the compensation amount can be ascertained.

16.  As the taxpayer does not know when the amount will be ascertained, the taxpayer requests a further extension of time until 30 June 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 subsection 124-75(3)

Reasons for decision

Subdivision 124-B of the ITAA 1997 explains the circumstances when a rollover is available for an asset that is compulsorily acquired, lost or destroyed.

If you receive money as a result of the compulsory acquisition, you can only choose a rollover if you incur expenditure in acquiring another capital gains tax asset.

Under subsection 124-75(3) of the ITAA 1997, you must incur at least some of the expenditure no earlier than one year before the event happens or, within one year after the end of the income year in which the event happens.

Taxation Determination TD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997? (TD 2000/40) provides guidelines as to when the Commissioner will extend the period in which a replacement asset can be acquired, in particular what are special circumstances.

Example 3 in TD 2000/40 provides an example in which a taxpayer's asset is compulsorily acquired by a State authority. The taxpayer is then involved in a protracted legal dispute with the authority over the quantum of the compensation. In this instance, the Commissioner accepts that there are special circumstances to allow further time for the taxpayer.

The lack of certainty as to the amount and timing of the compensation to be received has delayed the ability of the taxpayer to search for and acquire an appropriate replacement asset.

We consider that you have made continuing efforts and have done what is reasonable in attempting to acquire a replacement asset as per example 3 in TD 2000/40.

Accordingly, the Commissioner will exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997 and extend the period for you to acquire the replacement asset to 30 June 20XX.

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