Edited version of private advice

Authorisation Number: 1052397645000

Date of advice: 5 June 2025

Ruling

Subject: CGT - extension of time

Question

Will the Commissioner exercise the discretion pursuant to paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the one-year period for the Company to acquire a replacement asset for Property 1, which was compulsorily acquired by an Australian government agency, to DD/MM/YYYY?

Answer

Yes.

This ruling applies for the following periods:

Year ending DD MM YYYY

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

1.  In MM YYYY a property located in Australia ('Property 1'), was compulsorily acquired from Company A Pty Ltd ('the Company') by an Australian government agency.

2.  Despite efforts by the Company to find a replacement asset since the time that it was acquired, there are limited properties available in the general area capable of providing similar returns on investment.

3.  The Company also owns another property ('Property 2') located within the same area and has recently been notified that this property will also be compulsorily acquired the Australian government agency, and that this is likely to occur in MM or MM of the income year following the acquisition of Property 1.

4.  The Company is requesting an extension for a further year to acquire a replacement asset for Property 1 to DD/MM/YYYY (the end of the income year after the acquisition of Property 2), as given that the 2 properties will be compulsorily acquired, the Company now intends to use the proceeds it receives for the acquisition of both of the properties to purchase a single property to replace the 2 properties acquired. It believes that an extension of time would place them in a better financial position to negotiate the purchase of the replacement property.

Information provided

5.  You have provided a number of documents containing detailed information in relation to the Applicant's application including your private ruling application, dated DD MM YYYY.

6.  We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 Subsection 124-70(1)

Income Tax Assessment Act 1997 Subsection 124-70(2)

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

Income Tax Assessment Act 1997 Subsection 124-75(4)

Income Tax Assessment Act 1997 Subsection 124-75(5)

Income Tax Assessment Act 1997 Subsection 124-75(6)

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

Reasons for decision

Summary

The Commissioner will exercise the discretion pursuant to paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the one-year period for the Company to acquire a replacement asset for Property 1 to DD/MM/YYYY.

Detailed reasoning

1.  Roll-over relief for the compulsory acquisition of a CGT asset is available where the conditions outlined in Subdivision 124-B of the ITAA 1997 are met.

2.  Under subsection 124-70(1) of the ITAA 1997, an entity may be able to choose a replacement-asset roll-over if a CGT asset owned by the entity is compulsorily acquired by an Australian government agency as per paragraph 124-70(1)(a) of the ITAA 1997.

3.  A replacement-asset roll-over 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.

4.  Subsection 995-1(1) of the ITAA 1997 defines an Australian government agency as the Commonwealth, a State or a Territory, or an authority of the Commonwealth or of a State or Territory.

5.  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) of the ITAA 1997). On satisfying these conditions, section 124-75 of the ITAA 1997 provides other requirements which must be satisfied if money is received for the event happening.

6.  Subsection 124-75(2) of the ITAA 1997 requires that the owner of the asset must incur expenditure in acquiring another CGT asset. Subsection 124-75(3) of ITAA 1997 requires the entity to incur some of that expenditure either one year before or one year after the end of the income year in which the event happens, or within such further time as the Commissioner allows in special circumstances.

7.  Subsection 124-75(4) of the ITAA 1997 requires that the replacement asset acquired must be used for the same or similar purpose as the taxpayer used the original asset. This replacement asset cannot become an item of trading stock just after the acquisition or be a depreciating asset (subsection 124-75(5) of ITAA 1997), nor become a 'registered emissions unit' just after the acquisition (subsection 124-75(6) of ITAA 1997).

8. In determining whether special circumstances exist for the Commissioner to extend the period in which to acquire a replacement asset, 'Taxation DeterminationTD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the ITAA 1997? ('TD 2000/40') provides guidance on interpreting subsection 124-75(3) of the ITAA 1997, in particular, what are 'special circumstances'.

9.  TD 2000/40 states that the expression 'special circumstances' by its nature is incapable of a precise or exhaustive definition. What constitutes 'special circumstances' depends on the facts of each particular case.

10.  TD 2000/40 provides example situations in which a taxpayer's circumstances are considered to constitute 'special circumstances' for the purposes of subsection 124-75(3).

11.  In determining whether the discretion will be exercised, the Commissioner also considers the following factors:

•                     there should be evidence of an acceptable explanation for the period of the 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

•                     a consideration of the consequences of exercising the discretion.

Application to your circumstances

12.  In MM YYYY a property located in Australia ('Property 1'), was compulsorily acquired from the Company by an Australian government agency.

13.  Despite efforts by the Company to find a replacement asset since the time that it was acquired, there are limited properties available in the general area capable of providing similar returns on investment.

14.  The Company also owns another property ('Property 2') located within the same area and has recently been notified that this property will also be compulsorily acquired the Australian government agency, and that this is likely to occur in MM or MM of the income year following the acquisition of Property 1.

15.  The Company has requested an extension for a further year (until the end of the income year after the acquisition of Property 2) to acquire a replacement asset for Property 1, as given that 2 properties will be compulsorily acquired, the Company now intends to use the proceeds it receives for the acquisition of both of the properties to purchase a single property to replace the properties acquired. It believes that an extension of time would place them in a better financial position to negotiate the purchase of the replacement property.

16.  Based on the facts provided, it is deemed that special circumstances do exist to warrant the Commissioner to exercise his discretion and allow an extension of time to obtain an additional replacement assets, as it would be fair and equitable to do so, given that the circumstances represent an acceptable explanation for the delay. In particular, we have considered the difficulties in obtaining a suitable replacement asset, and the benefits of waiting for the second property to be acquired to facilitate the purchase of a suitable replacement asset.

17.  Also, by granting this extension of time to acquire replacement asset:

•                     there does not appear to be any prejudice to the Commissioner or any other parties

•                     there is no unsettling of people or of established practices

•                     there does not appear to be any mischief involved in this case

•                     the Commissioner considers it to be fair to people in like positions and the wider public interest.

18.  Therefore, the Commissioner will exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow an extension of time in relation to Property 1 to obtain a replacement asset until DD/MM/YYYY.

CONCLUSION

19.  The Commissioner will exercise the discretion pursuant to paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the one-year period for the Company to acquire a replacement asset for Property 1 until DD/MM/YYYY (being the end of the income year ending 1 year following the income year in which Property 2 will be acquired).

ATO view documents

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'.

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