Edited version of private advice

Authorisation Number: 1052110314811

Date of advice: 20 April 2023

Ruling

Subject: CGT - replacement asset

Question

Will the Commissioner exercise the discretion in subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period to acquire a replacement asset by month 20xx?

Answer

Yes.

This ruling applies for the following periods:

Income year ended 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You owned a property where the business was running.

You sold the asset and rolled-over the capital gain in accordance with section 112-105 of the Income Tax Assessment Act 1997 (ITAA 1997).

You signed the contract to purchase a replacement asset and build new premises thereon.

You carried out all prudent steps in order to have your new premises ready for business.

You progressed with Architectural and engineering plans.

Due to circumstances out of your control your plans did not materialise.

You requested an extension to the replacement asset period to acquire a replacement asset until month 20xx, an expected completion date.

Relevant legislative provisions

Income Tax Assessment Act 1997section 104-190

Income Tax Assessment Act 1997section 104-190(1A)

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

Income Tax Assessment Act 1997section 104-197

Income Tax Assessment Act 1997Division 152 A

Income Tax Assessment Act 1997Division 152 E

Income Tax Assessment Act 1997section 152-410

Income Tax Assessment Act 1997section 152-415

Reasons for decision

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997.

Subdivision 152-E contains the provisions regarding the small business roll-over relief. Under sections 152-410 and 152-415, the small business roll-over relief allows entities that satisfy the conditions in Subdivision 152-A to defer all or part of each capital gain arising from a CGT event happening to an active asset.

Under note 1(a) of section 152-410, this roll-over is available to the entity even if they have not acquired a replacement asset at the time of claiming the roll-over provided that a replacement asset is acquired by the end of the replacement asset period. CGT event J5 happens if a replacement asset is not acquired by the end of the replacement asset period: pursuant to section 104-197.

Subsection 104-190(1A) states that the replacement asset period is the period starting one year before and ending two years after the last CGT event in the income year for which you obtain the roll-over.

Section 104-190 provides that the Commissioner may extend the replacement asset period.

The Commissioner considers the following factors when determining whether to grant an extension to the asset replacement period:

• Is there evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension?
• Is there any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension)?
• Will the extension unsettle people, other than the Commissioner, or established practices?
• Will the extension be fair to people in like positions and the wider public interest?
• Is there mischief involved?
• What are the consequences of the decision?

Applying the law to the circumstances

The Commissioner has decided to exercise his discretion under subsection 104-190(2) and extend the replacement asset period to month 20xx. This is because:

• you have provided an acceptable explanation for the period of the extension requested. It would be fair and equitable in the circumstances to provide the extension.
• due to your commitment to a replacement asset and acceptable explanation the Commissioner is of the view that no mischief has occurred.
• there is unlikely any prejudice to the Commissioner if the additional requested time is granted.

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