Edited version of private ruling

Authorisation Number: 1011708326457

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Ruling

Subject: Capital Gains Tax - Extension of time to acquire a replacement asset

Question

Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow you additional time for your newly acquired replacement asset to become an active asset?

Answer

Yes, an extension of five months has been granted.

This ruling applies for the following period:

1 July 2010 to 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts

You sold assets used in your enterprise and nominated to use the small business replacement asset rollover concession for the resulting capital gain. You were eligible for the small business rollover concessions as you satisfied the maximum net asset value test. Your total net assets were less than $5 million.

Your intention at the time of selling the assets was to start another business enterprise with the purchase of land, building or plant and equipment for the new business to satisfy the criteria for replacement assets. Due to various circumstances, you were unable to acquire replacement assets before the expiration of the two years allowed.

You applied to the Commissioner for an extension of that time limit. An extension was subsequently granted.

Later, you applied for a private ruling as to whether a particular property which you were considering would qualify as an active asset under the small business provisions. The ruling was issued in the affirmative and you proceeded to negotiate the purchase of the property.

The negotiation process was delayed several times however the terms of purchase were finally agreed and you were planning to move into the new premises. Due to circumstances beyond your control, the move was not possible and may not be possible for some weeks to come. As a consequence, you are now seeking a further extension of time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 104-185

Income Tax Assessment Act 1997 Section 104-190

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 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 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 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

Unless otherwise specified, all legislative references in the following Reasons for Decision are to the Income Tax Assessment Act 1997.

Summary

Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow a further extension to the time limit.

Detailed reasoning

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.

You contracted for the sale of the asset. The two year limit in which to find a replacement consequently expired. You sought and were granted an extension of time.

Negotiations in respect of a new business were undertaken and purchase finally agreed upon. You had planned to move in. Due to circumstances beyond your control, the move was not possible and may not be possible for some weeks to come.

Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow a reasonable extension to the time limit. Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions.

The previous extension that would require the replacement asset to be acquired by a certain time is extended. The extension will allow the new asset to be considered a replacement asset for the purposes of section 104-185 of the ITAA 1997.