Edited version of private ruling

Authorisation Number: 1011771062366

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Ruling

Subject: Capital Gains - Small Business Concessions - Extension Of Time

Question 1

Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) for an extension of time to acquire a replacement asset?

Answer

No.

This ruling applies for the following period

30 June 2011

30 June 2012

The scheme commenced on

01 July 2010

Relevant facts

You are requesting a further extension of time allowed to replace your asset of your CGT asset after application of the small business rollover, which is due to crystallise by 30 June 2011.

You expect that your financial position will improve within the next 12 to 24 months. In this time you are waiting for an increase on your investments and when this occurs you will purchase a replacement asset.

You sold your business for $x and sought advice from a financial planner.

You invested X% of your funds into a managed fund account on the advice of your financial planner. The rationale being if you did not acquire a replacement asset you would be able to use these funds to meet the CGT liability within two years.

You invested the other X% of your money in the share and property markets, to increase your funds to purchase a replacement property and business. The government brought in a bank guarantee which resulted in you incurring a loss of $x, therefore you could not find a replacement asset to meet the required standard due to the losses you had incurred.

At a later point in time the Income Fund was frozen along with other Funds in the industry, you requested quarterly payouts of 100%, however only small amounts of money have been released ($x) in total from the original amount of $y that was initially invested.

You had not looked for a replacement asset prior to the freezing of your investments some 18 months after the CGT event.

All your funds have been severely impacted, although there has been some recovery since that time, your asset base remains heavily diminished and partially frozen.

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
Income Tax Assessment Act 1997 Subdivision 152-A

Reasons for decision

Unless otherwise stated, all legislative references in the following Reasons for Decision are from the Income Tax Assessment Act 1997(ITAA 1997).

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.

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

Judicial decisions which have dealt with extension of time issues and the exercise of the Commissioner's discretionary powers generally, have offered guidance regarding the factors to which the Commissioner should have regard in considering the exercise of his discretion.

In determining if the discretion should be exercised, the Commissioner considers the following factors:

(1) 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. However, there is no rule that an explanation is an essential pre-condition ;

(2) Account must be had of 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) There must be a consideration of whether there is any mischief involved ; and

(6) There must be consideration of the consequences.
In the present case, an explanation for the delay in replacing an asset has been provided. That explanation refers to the losses from your investment of monies into managed funds. In the current financial environment an extension of time would allow for an increase of your funds within the next 12 to 24 months.

You previously applied for a private ruling, this private ruling was declined but an extension of time was granted for you to acquire a replacement asset.

Since selling your property and business, until the freezing of your funds which is a period of 18 months, you had made no attempt to look for a replacement asset.

You have indicated that you have incurred losses since investing your funds on advice from your financial planner. You have not acquired or sought to find a replacement asset due to these losses and as the market is recovering a further extension will recoup some of your losses so you can purchase another property and start your business.

Based on the facts, the Commissioner will not exercise his discretion to allow an extension to the time limit, as he in not satisfied that you intended to acquire a replacement asset.

Specifically, this is based on:

· Making no attempt to acquire a replacement asset prior to the freezing of funds, and

· Investing in what are considered to be long term investments.