Edited version of private advice

Authorisation Number: 1052102223263

Date of advice: 28 March 2023

Ruling

Subject: CGT small business rollover - replacement asset period

Question

Will the Commissioner grant a further one-year extension to acquire a replacement CGT active asset to meet the requirements of the small business capital gains tax 'small business rollover' concessions?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XZ

The scheme commenced on:

20XV

Relevant facts and circumstances

On a date in 20XV you sold a CGT asset.

This was originally recorded as a CGT event on your tax return with the CGT rollover concession applied to reduce the capital gain to nil.

You purchased the initial replacement asset during 20XW.

The end date for acquiring replacement assets was a date in 20XW, however as you had not expended all the capital gain to acquire replacement assets you asked the Commissioner to extend the period to a date in 20XX and this was granted.

Since the issue of that private ruling, you have been in the process of making the necessary capital improvements to the asset purchased in 20XW. You have provided details of this.

You will use remaining capital gain for the capital improvements to the asset.

Reasons for delay:

You continue to have difficulties getting the required professionals and services to assist in getting the asset to a point where it would be commercially viable.

The delays are due to the consequent impacts of the COVID-19 shutdowns on construction and regulatory processing.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-190(2)

Reasons for decision

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise stated.

Summary

The Commissioner will grant a further one-year extension, to acquire a replacement CGT active asset to meet the requirements of the small business capital gains tax 'small business rollover' concession.

Detailed reasoning

If you make a capital gain from a CGT asset and satisfy all the basic conditions in Subdivision 152-A, you may choose small business roll-over in Subdivision 152-E.

There are roll-over conditions that must be satisfied by the end of the replacement period, if the roll-over conditions are not met within the replacement asset period, the gain will become assessable.

Subsection 104-190(1A) requires a taxpayer to acquire a replacement asset within a period starting one year before and ending two years after the date of disposal of the original asset. However, subsection 104-190(2) states that the Commissioner may exercise his discretion to extend this time limit.

An extension of time may be granted where there have been special circumstances and an acceptable explanation for the period of extension requested. These can include, but are not limited to medical or financial issues, personal issues, or natural disasters.

The relevant factors in determining whether to extend the replacement asset period are:

•         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.

ATO Interpretative Decision ATO ID 2001/619 (Withdrawn) Income Tax Capital gains tax: Small business roll-over: extension of time to acquire replacement asset, was a decision in relation to former subsection 152-420(3), which allowed the Commissioner to extend the time limits under former subsection 152-40(1) to acquire a replacement asset for the small business roll-over.

Although ATO ID 2001/619 was withdrawn on the basis that it was a 'simple restatement of the law and does not contain an interpretative decision', it is still illustrative. In making the decision to allow the extension of time it noted that:

• the negotiation process, which was the cause for delay, commenced within the relevant period for small business roll-over
• the replacement assets were acquired a short time outside the relevant period, and
• the delays were beyond the control of the taxpayer.

A requirement of the small business rollover concession is that you must acquire a replacement asset and it is expected that you would take action to find a suitable replacement asset in anticipation of the receipt of the proceeds from the sale of the CGT asset.

Where that cannot be achieved within the replacement asset period, there is an expectation that you can demonstrate that you have been actively looking to acquire a replacement asset but were not able to do so, through no fault of your own.

You made a capital gain on a date in 20XV.

The end date for acquiring replacement assets was a date in 20XW, however as you had not expended all the capital gain to acquire replacement assets you asked the Commissioner to extend the period to a date in 20XX and this was granted.

You have been actively seeking to make the necessary capital improvements to the asset purchased in 20XW. You have continued to experience delays because of the consequent impacts of the COVID-19 shutdowns on construction and regulatory processing.

Although you have already received an extension of one year, an additional year given the current circumstances which have resulted from the COVID-19 shutdowns, would not necessarily result in unfairness to people in like positions.

After considering the relevant factors for determining whether to exercise the Commissioner's discretion and the specific circumstances of this case, we consider that your circumstances warrant an additional one-year extension of time.

Therefore, the Commissioner will exercise the discretion under subsection 104-190(2) to extend the period for acquiring the replacement asset to a date in 20XY.

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