Edited version of private ruling

Authorisation Number: 1011476897290

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Ruling

Subject: Small business roll over - extension of time

Question

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?

Answer

Yes.

This ruling applies for the following period:

1 July 2010 to 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You advise you are eligible for the capital gains rollover for small business and that you made this choice to rollover the capital gains by not reporting the capital gain in your individual income tax return in the year of the capital gain.

You request the Commissioner grant an extension of time to extend the period to acquire a replacement asset.

You advise that since the active asset was sold you have relocated to look for a replacement active asset. During this time you encountered a number of special circumstances. You state that during this time you have been actively looking for a business but unfortunately there are not many businesses available to purchase.

Your tax agent confirmed your request is for an extension to the replacement asset period. Your tax agent advised you disposed of your share in a company on date X and that you used some of the roll over amount to go into business with a family member. Your tax agent advised you operated a business with the intention of expanding the shop floor and increasing the business size thereby utilising the whole of the exempt amount. However a period the business was running at an increasing loss and you ceased the venture. Your tax agent further advised you continue to actively look for another suitable business.

Relevant legislative provisions

Subdivision 152-A of the Income Tax Assessment Act 1997

Subsection 104-185(1) of the Income Tax Assessment Act 1997

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

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

Small business roll-over

The small business roll-over allows you to defer the capital gain made from a capital gains tax (CGT) event if you acquire one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain relief are set out in Subdivision 152-A of the ITAA 1997.

For you to obtain a roll-over, subsection 104-185(1) of the ITAA 1997 requires you to acquire a replacement asset within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) states that the Commissioner may exercise his discretion to extend those time limits.

Commissioner's discretion

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

- 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

- 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

- any unsettling of people, other than the Commissioner, or of established practices

- consideration of fairness to people in like positions and the wider public interest

- whether there is any mischief involved, and

- a consideration of the consequences.

Your particular circumstances

In your situation the original asset was disposed of on date X and in accordance with the roll-over provisions the period for acquisition of a replacement asset ends two years after the date of disposal, which would be date Y. You did acquire a replacement asset using some of the exempt amount with the intention of utilising the remainder in improvements to the asset, however due to personal circumstances you ceased the venture after a number of months. This has resulted in a delay of the acquisition of a further replacement asset.

Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) of the ITAA 1997 and allow an extension to the replacement asset period. Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions.