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Authorisation Number: 1012016884452

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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 for your replacement asset to be acquired?

Answer: Yes, the time limit set out in paragraph 104-185(1)(a) of the ITAA 1997 has been extended 12 months.

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.

1 July 2012 to 30 June 2013.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

During the 2009-10 financial year you sold a business and made a capital gain on the sale and chose to apply the replacement asset roll-over relief.

You were aware that you needed to acquire a replacement asset within the replacement asset period and started investigating new business opportunities. You were seriously contemplating commencing a business however you became ill.

After several months of severe pain, during which time you were unable to work, a diagnosis was made and you underwent a surgical procedure and you are now recovering.

You expect to return to full health in a number of months and will then commence to research a new business.

You are requesting a two year extension to the replacement asset period.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152E.

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

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

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

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.

Paragraph 104-185(1)(a) of the ITAA 1997 states that you must acquire the replacement asset within the period starting one year before and ending two years after the last CGT event that happens in the income year for which you obtain the roll-over.

Paragraph 104-185(1)(b) of the ITAA 1997 states that the replacement asset must be an active asset at the at the end of the replacement asset period.

In your case, you applied the roll-over concessions in respect of the sale of a business. You advised you will not be able to acquire a suitable replacement asset within the replacement asset period.

Where a taxpayer is unable to acquire a suitable replacement asset within the replacement asset period the Commissioner may exercise his discretion to further extend the time limit as provided by subsection 104-190(2) of the ITAA 1997.

Commissioner's Discretion

In determining if discretion should 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 there is any mischief involved, and

§ a consideration of the consequences.

After considering the relevant factors against your circumstances, it is considered that there is an acceptable explanation for the extension requested.

In your circumstances you actively sought to commence a new business by conducting research and had found a likely business when you became ill. You suffered several months of pain before being diagnosed and then had to undergo surgery. You expect to fully recover in around six months and will then recommence to establish a new business.

Allowing an extension of time would not prejudice the Commissioner, and there would appear to be no unsettling of other people or established practices in this case.

There is no evidence of a lack of fairness between you and other people in like positions and the wider public interest. Other persons are within their rights to have a request for an extension of time considered, based on the individual facts of each case.

Based on the facts of this case there appears to be no mischief involved.

The consequences to you of not granting the extension of time would be to deny you the small business roll-over under the CGT small business relief provisions. 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.

Conclusion

The Commissioner is able to apply his discretion under subsection 104-190(2) of the ITAA 1997, to extend the time period for you to acquire a replacement asset.