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Edited version of private advice
Authorisation Number: 1052110337934
Date of advice: 4 May 2023
Ruling
Subject: CGT - replacement asset roll-over
Question 1
Will the Commissioner exercise the discretion in paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time for you to acquire replacement capital gains tax (CGT) assets following the compulsory acquisition of the Original Property?
Answer
Yes. Your circumstances are comparable to those provided in example 3 in Tax Determination 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? The Commissioner will exercise the discretion and allow an extension of time to acquire replacement CGT assets. Further information about the roll-over in Subdivision 124-B of the ITAA 1997, including the roll-over consequences, can be found by searching 'QC 66017' on ato.gov.au.
Question 2
Will the replacement properties satisfy the same or similar purpose test in subsection 124-75(4) of the ITAA 1997?
Answer
Yes. There is no restriction on the number of CGT assets which may be treated as replacement CGT assets for an original CGT asset provided that they each satisfy the relevant requirements of Subdivision 124-B of the ITAA 1997. The Original Property was used to derive rental income and as the replacement properties will also be used to derive rental income they will have been used for the same purpose of deriving rental income. As such, the replacement properties will satisfy the same or similar purpose test. You will be able to apply the roll-over in Subdivision 124-B to the capital gain you make on the disposal of the Original Property provided you use the replacement properties to derive rental income for a reasonable time after you acquire them.
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You owned a commercial property (Original Property) and used it to derive rental income.
You were notified by a Government Authority that the Original Property was to be compulsorily acquired.
You have been in protracted negotiations with the Government Authority over the quantum of the compensation you should receive for the compulsory acquisition.
Once a resolution or settlement is reached and the final compensation has been received you will acquire replacement properties which will be used to derive rental income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 124-B
Income Tax Assessment Act 1997 paragraph 124-75(3)(b)
Income Tax Assessment Act 1997 subsection 124-75(4)
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