Edited version of private advice

Authorisation Number: 1052359835526

Date of advice: 10 February 2025

Ruling

Subject: CGT - roll-over

Question

Will Company X be entitled to apply the CGT roll-over contained in Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) to the capital gain arising from the compulsory acquisition of the Land?

Answer

Yes.

This ruling applies for the following periods

1 May 20XX to 30 April 20XX

The scheme commenced on

1 May 20XX

Relevant facts and circumstances

In 19XX Company X acquired the Land.

In 20XX the Land was compulsorily acquired by an Australian Government Agency.

Due the lack of certainty as to the final amount of compensation, this delayed the ability of Company X to search for and acquire an appropriate replacement asset.

Company X has now identified and is intending to acquire a Replacement Property.

Settlement of the acquisition of the Replacement Property will occur in 20XX

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

All legislative references are to theIncome Tax Assessment Act 1997unless otherwise stated.

Roll-over relief for the compulsory acquisition of a CGT asset is available where the conditions outlined in Subdivision 124-B are met.

Under subsection 124-70(1), an entity may be able to choose a replacement asset rollover if a CGT asset owned by the entity is compulsorily acquired by an Australian government agency as per paragraph 124-70(1)(a).

A replacement-asset rollover allows you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens.

Subsection 995-1(1) defines an Australian government agency as a Commonwealth, a State or a Territory or an authority of Commonwealth or of a State or Territory.

In this case, the Land has been compulsorily acquired from Company X by an Australian Government Agency satisfying the condition in paragraph 124-70(1)(a).

A further requirement is that the owner of the original asset must receive money or another CGT asset or both, for the CGT event to be eligible for a rollover (subsection 124-70(2)).

Company X received an initial sum of compensation in 20XX and is currently in negotiation with the Authority to determine the final amount satisfying the condition in paragraph 124-70(2)(a).

Subsections 124-70(3) and 124-70(4) do not apply in this case.

On satisfying these conditions, section 124-75 provides other requirements which must be satisfied if money is received for the event happening.

Company X will satisfy the condition in paragraph 124-75(2)(a), as Company X will incur expenditure in acquiring another CGT asset.

Paragraph 124-75(3)(b) requires you to incur expenditure in acquiring a replacement CGT asset no later than one year after the CGT event, or within such further time as the Commissioner allows in special circumstances.

Same or similar purpose

Subsection 124-75(4) requires taxpayers to use the replacement asset (for a reasonable time after it is acquired) for the same purpose as, or for a similar purpose to, the purpose for which taxpayers used the original asset just before the event under paragraph 124-70(1) happened.

The terms 'same' and 'similar' in subsection 124-75(4) are not defined in the Income Tax Assessment Act, guidance may be drawn from the ordinary meaning of the terms.

The Macquarie Dictionary (Macquarie Dictionary Online, 2024) defines:

•                     'same' to mean, 'identical with what is about to be or has just been mentioned...' and

•                     'similar' to mean, 'having likeness or resemblance, especially in a general way'.

Further, the Commissioner has previously considered the application of this rule in Taxation Determination TD 2000/42 Income tax: what is the scope of the words 'use the other asset ... for the same purpose ... or for a similar purpose' in subsection 124-75(4) of the Income Tax Assessment Act 1997 in relation to a replacement asset?. Specifically, TD 2000/42 states that whether an asset is used for the same or similar purpose as another asset is a question of fact and degree.

TD 2000/42 illustrates that there is no requirement for the replacement asset to be a similar asset, it must merely be used for the 'same' or a 'similar' purpose.

It is considered that the Company X's acquisition of the Replacement Property, satisfies the "same and similar" purpose test in subsection 124-75(4), as it will be used for the same purpose as the compulsorily acquired Land.

Conclusion

Company X satisfies the conditions for roll-over relief under Subdivision 124-B in respect of the compulsory acquisition of the Land and the expenditure it incurs in acquiring the Replacement Property.

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