Edited version of private ruling

Authorisation Number: 1011759664535

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Ruling

Subject: Capital gains tax (CGT) - extension of time to acquire a replacement asset for an asset compulsorily acquired

Question

Will the Commissioner extend the time period under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you to acquire a replacement asset?

Answer

Yes

This ruling applies for the following period:

1 July 2010 to 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You owned a farming property which was compulsorily acquired by an Australian government agency during the financial year ended 30 June 2010. The agency paid you compensation for the property.

You advised that you are yet to incur some expenditure on a replacement CGT asset before 30 June 2011 due to the following factors:

· the agency originally advised of a partial property acquisition some years ago and were only convinced of a total acquisition more recently

· over this several year period you could not improve or significantly develop the property as capital would have been risked without prospect of recovery

· to secure other income during this period of uncertainty, the appointer and principal of the trust secured an employment position overseas

· despite constantly researching the market post settlement and looking at purchasing a replacement property, there has been a lack of listings within the same locality

· you have undertaken several property inspections in the twelve months prior to the compulsory acquisition but it has proved difficult to procure a property of similar characteristics, including size and affordability, as the one resumed by the agency

· you never had the intention to sell the farming property and are adamant that another property will be purchased once a suitable land holding has been identified and a price negotiated

· you are concerned that a CGT liability now will erode a significant amount of your cash so that you would be forced to acquire a lesser property and/or borrow funds to obtain the right property.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-10(6)

Income Tax Assessment Act 1997 subsection 124-75(3).

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 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

Commissioner's discretion - extension of time to acquire a replacement asset for a compulsorily acquired asset

Subdivision 124-B of the ITAA 1997 provides a replacement asset rollover where an asset is compulsorily acquired, lost or destroyed. Subsection 124-75(3) of the ITAA 1997 requires you to incur at least some of the expenditure in acquiring a replacement CGT asset within one year before the event happens, or not later than one year after the end of the income year in which the event happens. The Commissioner can allow further time in special circumstances.

Paragraph 3 of Taxation Determination TD 2000/40 says that what are special circumstances depends on the facts of each particular case.

The time of the event is determined by subsection 104-10(6) of the ITAA 1997. The time of the event will be the earlier of:

· when you received compensation from the entity acquiring your asset

· when the entity became the asset's owner

· when the entity entered it under the compulsory acquisition power, or

· when the entity took possession under that power.

As per example 2 in paragraph 5 of TD 2000/40, the Commissioner will exercise his discretion to allow further time where you have done what is reasonable to acquire a replacement asset.

Application to your circumstances

An Australian government agency compulsorily became the owner of your asset during the financial year ended 30 June 2010. Therefore, you are required to acquire a replacement asset by 30 June 2011.

You advised that you have not yet incurred some expenditure on a replacement CGT asset due to the following factors:

· the agency originally advised of only a partial property acquisition several years ago and were only convinced of a total acquisition more recently

· over this period you could not improve or significantly develop the property as capital would have been risked without prospect of recovery

· to secure other income during this period of uncertainty, the appointer and principal of the trust secured an employment position overseas

· despite researching the market post settlement in order to purchase a replacement property, there has been a lack of listings within the same locality

· you undertook several property inspections in the twelve months prior to the compulsory acquisition but you have not yet been able to procure a property of similar characteristics to the one resumed by the agency

· you never intended to sell the farming property and are adamant that another property will be purchased once a suitable land holding has been identified and a price negotiated

· you are concerned that a CGT liability now will erode a significant amount of your cash so that you would be forced to acquire a lesser property and/or borrow funds to obtain the right property.

Therefore, you have requested an extension of time to purchase a replacement property.

You have done what is reasonable in attempting to acquire a replacement asset as per example 2 in TD 2000/40. Therefore, the Commissioner will exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997 and extend the period for you to acquire the replacement asset.