Edited version of private ruling

Authorisation Number: 1011679443396

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Ruling

Subject: Extension of Time to Acquire a Replacement Asset

Question

Will the Commissioner exercise his discretion pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period set out in paragraph 104-185(1)(a) for a replacement asset to be acquired?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2012

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling

The Taxpayer sold an asset.

The sale generated a capital gain to which the Taxpayer applied the capital gains tax (CGT) small business concessions to reduce its net capital gain to zero.

The 50% active asset reduction was applied first to reduce the capital gain.

The Taxpayer then applied the roll-over to defer the remaining capital gain.

The Taxpayer is in the financial services industry.

The Taxpayer has actively sought to purchase an appropriate replacement asset and conducted due diligence on several potential acquisitions, none of which have progressed to contract due to the risks exposed.

Due to the nature of the business activities of the Taxpayer potential acquisition targets are limited.

The Taxpayer is currently in discussions and has signed confidentiality agreements for potential acquisitions.

The Taxpayer continues to pursue and assess potential replacement assets with full funding in place through banking facilities.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1197) paragraph 104-185(1)(a)

Income Tax Assessment Act 1997 (ITAA 1197) subsection 104-190(2)

Income Tax Assessment Act 1997 (ITAA 1197) subdivision 152-A

Income Tax Assessment Act 1997 (ITAA 1197) subdivision 152-E

Reasons for decision

Question 1

Summary

Having considered the relevant factors, the Commissioner is satisfied that it would be fair and equitable in the circumstances to exercise his discretion under subsection 104-190(2) of the ITAA 1997

Detailed reasoning

The Taxpayer sold an asset and exercised the Small Business Capital Gains Tax (CGT) Concessions. Since the sale of the asset, the Taxpayer has actively sought to purchase a suitable replacement asset by conducting due diligence on several potential acquisitions. The due diligence conducted determined several risk factors.

These risks are specific to the taxpayer's industry. Due to these risks, together with the fact that there are a limited number of businesses that are potential acquisitions for the Taxpayer, no contract has been orchestrated. Resulting in, no asset purchases taking place, and the likelihood that a suitable purchase will not be made within the replacement asset period.

The Taxpayer continues to actively seek a suitable replacement asset by pursuing potential replacement assets.

Subdivision 152-E of the ITAA 1997 provides the conditions to be met for obtaining relief under the small business roll-over provisions, which allow deferring a capital gain from a CGT event happening in relation to one or more small business assets if the basic conditions within subdivision 152-A are satisfied.

For the Taxpayer to obtain a roll-over, paragraph 104-185(1)(a) requires a replacement asset to be acquired within a period starting one year before, and ending two years after the date of the disposal of the original asset.

The Commissioner may exercise his discretion and extend the time limit for the Taxpayer to acquire a replacement asset as provided by subsection 104-190(2) of the ITAA 1997.

The principles of exercising discretion

To assist the Commissioner in considering the exercise of his discretion, case law lists relevant factors that must be considered. In Hunter Valley Developments Pty Ltd and Ors v Cohen (1984) 58 ALR 305, Wilcox J summarised the guiding principles for the exercise of discretion, generally the following factors are relevant:

1. there must be an acceptable explanation for the period of extension requested so that it would be fair and equitable in the circumstances to provide such an extension;

2. 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;

3. account must be had of any unsettling of people, other than the Commissioner, or of established practices;

4. there must be a consideration of fairness to people in like positions and the wider public interest;

5. whether there is any mischief involved; and

6. a consideration of the consequences to the taxpayer in granting an extension.

These factors are also provided by the Advanced Guide to Capital Gains Tax Concessions for Small Business 2008-09 (NAT 3359).

Having considered the relevant factors, the Commissioner is satisfied that it would be fair and equitable in the circumstances to exercise his discretion under subsection 104-190(2) of the ITAA 1997 and extend the time limit for a replacement asset to be acquired.