Edited version of private ruling

Authorisation Number: 1011611360281

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Ruling

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

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 in order to allow you to treat the property two as a replacement asset?

Answer:

Yes.

This ruling applies for the following periods:

1 July 2009 to 30 June 2010.

1 July 2010 to 30 June 2011.

1 July 2011 to 30 June 2012.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

You are the joint owners of Property One. The property was used in the business of a primary production operation and you intended this to be a long term commitment and took steps to establish a residence next to the property.

Due to health issues with your family your plans changed and the permanent move to Property One was not practical.

Due to your circumstances, you decided to sell Property One and purchase an appropriate alternate primary production business within a reasonable distance to facilities for your family.

You prepared Property One for sale and after research and negotiations decided to purchase Property Two.

You signed a contract for the purchase of Property Two and at about the same time you executed a contract for the sale of property one, 'subject to finance'. This sale fell through as the purchaser was unable to obtain finance. The prime selling period for properties in the area was over.

You have been actively marketing property one for sale and have changed agents and have substantially reduced the sale price.

Some of the factors that have made the sale of property one difficult are:

· wild weather including flooding and gale force winds

· continuing global financial crisis (GFC) concerns in the market

· Australia's current unstable political situation

· ongoing media re the Victorian bushfires, and

· ongoing drought concerns.

You presently have a party interested in Property One however, are requesting an extension of time to provide adequate time for the normal cycle of farm sales if the property does not sell this Spring.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 Section 152-415.

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 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 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 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 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website 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

Replacement asset period

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.

The replacement asset period is defined by paragraph 104-185(1)(a) of the ITAA 1997 as being the time starting one year before, and ending two years after, the happening of the last CGT event in the income year for which the small business roll-over is obtained.

You signed a contract to purchase Property Two during the 2009-10 income year. To be able to apply the small business roll-over provisions you will need to dispose of property one within 12 months of the purchase of property two.. This would result in the replacement asset being purchased in the period one year before the CGT event.

Commissioners Discretion

The Commissioner can exercise his discretion under subsection 104-190(2) of the ITAA 1997. This discretion would allow the small business roll-over provisions to apply where the Commissioner has extended the replacement asset period.

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

· there should be 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

· 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 any mischief is involved, and

· consideration of the consequences.

These factors as they relate to you are discussed below.

You had long term plans to use Property One in your business. Due to family issues these plans had to change and you prepared the property for sale. You signed a contract for the sale of the property at about the same time that you purchased the replacement property.

A number of factors then affected the sale of the property including:

· the purchaser being unable to obtain finance, and

· the end of the spring (buying/selling period).

You took steps to improve the likelihood of a sale including changing agents and substantially decreasing the selling price.

You presently have an interested party however you are requesting an extension of the replacement asset period as you are uncertain of selling the property due to the following reasons:

· wild weather including flooding and gale force winds

· continuing global financial crisis (GFC) concerns in the market

· Australia's current unstable political situation

· ongoing media re the Victorian bushfires, and

· ongoing drought concerns.

Based on the facts it appears you are attempting to dispose of Property One as quickly as possible after the purchase of Property Two.

This is considered an acceptable set of circumstances for an extension of time request. It would seem fair and equitable to provide an extension of time in such circumstances.

The granting of an extension in the circumstances will not give rise to any prejudice towards the Commissioner.

There will not be any unsettling of any persons other than the Commissioner, nor will it unsettle any established practices as the granting of an extension of time to a taxpayer, dependent upon the facts, is itself an established practice.

The granting of an extension of time in the circumstances would not result in any amount of unfairness to people in similar circumstances or like positions to you. The ability to apply for an extension of time is available to the wider taxpaying public.

There appears to be no mischief involved in the circumstances which have resulted in the request for an extension of time.

The consequences of granting the extension of time are that you will be eligible for the small business roll-over concession, and thus the capital gain that will arise will be disregarded to the extent set out in section 152-415 of the ITAA 1997. 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. This will happen if the extension of time is allowed.

Conclusion

Having considered the relevant factors, the Commissioner is able to apply his discretion under subsection 104-190(2) of the ITAA 1997 to extend the replacement asset period to allow you to treat Property Two as a replacement asset.