Edited version of private ruling

Authorisation Number: 1011340716326

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Ruling

Subject: CGT - small business concessions - extension of time to acquire a replacement asset

Question and answer

Will the Commissioner, pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997), extend the time limit set out in paragraph 104-185(1)(a) of the ITAA 1997 for your replacement asset to be acquired for a further 12 months?

Yes.

This ruling applies for the following period/s:

1 July 2009 to 30 June 2010

1 July 2010 to 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

The sole director of the company and hands on operator had been diagnosed with an illness and had undergone surgery and rehabilitation.

The doctor had advised the director to sell the business and allow some time for recovery, say 12 months.

The sole director disposed of a business asset and made a capital gain.

You elected to roll-over the capital gain under Subdivision 152-E of the ITAA 1997 and purchase a replacement asset.

After an initial period of recovery, the director started actively seeking a business to purchase. The director viewed a number of opportunities with established adequate funding measures.

The director suffered a setback when a test detected some problems. The director has been referred to a specialist and further tests are scheduled.

The director is currently investigating a couple of businesses with the help of his partner.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152E.

Income Tax Assessment Act 1997 Subsection 104-190(2).

Income Tax Assessment Act 1997 Paragraph 104-185(1)(a).

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA of the ITAA 1936 applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA of the ITAA 1936 may apply.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Subdivision 152-E of the ITAA 1997 provides small business roll-over as part of the small business capital gains tax (CGT) relief provisions. The roll-over allows you to defer the capital gain made from a CGT event happening in relation to a business asset, if you acquire a replacement asset within the replacement asset period, and other specific conditions are satisfied.

Subsection 104-185(1)(a) of the ITAA 1997 states that you must acquire the replacement asset within the period starting one year before and ending two years after the last CGT event that happens in the income year for which you obtain the roll-over.

In your case, you applied the roll-over concessions in respect of the sale of a business asset. You advised you will not be able to acquire a suitable replacement asset within the replacement asset period.

Where a taxpayer is unable to acquire a suitable replacement asset within the replacement asset period the Commissioner may exercise his discretion to further extend the time limit as provided by subsection 104-190(2) of the ITAA 1997.

Commissioner's Discretion

In determining if discretion should be exercised, the Commissioner has considered the following factors:

· whether there is 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

· whether there is 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

· whether there is any unsettling of people, other than the Commissioner, or of established practices

· fairness to people in like positions and the wider public interest

· whether there is any mischief involved, and

· a consideration of the consequences.

After considering the relevant factors against your circumstances, it is considered that there is an acceptable explanation for the extension requested.

Allowing an extension of time would not prejudice the Commissioner, and there would appear to be no unsettling of other people or established practices in this case.

There is no evidence of a lack of fairness between you and other people in like positions and the wider public interest. Other persons are within their rights to have a request for an extension of time considered, based on the individual facts of each case.

Based on the facts of this case there appears to be no mischief involved.

The consequences to you of not granting the extension of time would be to deny you the small business roll-over under the CGT small business relief provisions. The purpose of Subdivision 152-E of the ITAA 1997 is to allow small business taxpayers to use the relevant portion of the capital gain to acquire new CGT assets.

Conclusion

The Commissioner is able to apply his discretion under subsection 104-190(2) of the ITAA 1997, to extend the time period for you to acquire a replacement asset for a further 12 months.