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Ruling

Subject: CGT replacement asset roll-over - Extension of time

Question 1

Will the Commissioner exercise his discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 to allow an extension of time to obtain a replacement asset for an asset that has been compulsorily acquired by a government body?

Answer

Yes

Relevant facts and circumstances

All legislation referred to in this document is contained in the Income Tax Assessment Act 1997.

The Taxpayer owned a rental property which was compulsorily acquired by an Australian government body. Under section 124-75 the Taxpayer had to acquire a new asset by June 2013.

The Taxpayer lodged an appeal with the Land and Environment Court against the determination of compensation by the Valuer General. The Taxpayer is currently arguing before the court that the value of the property is substantially in excess of what is being offered.

Given the large disparity between the Taxpayer's valuation and the Valuer General's amount, no replacement property has been sought.

The Taxpayer argued that the court case might not be finalised for a number of years. Due to the uncertainty of time the Taxpayer is requesting an extension of time to acquire a replacement asset.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 124

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 Section 124-75

Income Tax Assessment Act 1997 Subsection 124-75(3)

Reasons for decision

Issue:

The Taxpayer is requesting that the Commissioner exercise his discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 to allow an extension of time to obtain a replacement asset for an asset that has been compulsorily acquired by a government body.

Law:

Part 3-3 contains the provisions relating to special topics of capital gains and losses. Division 124 provides for replacement asset roll-overs in certain situations. Subdivision 124-B provides for a replacement asset roll-over where the asset has been compulsory acquired, lost or destroyed. Section 124-75 contains the requirements when money is received for an asset under this subdivision. Subsection 124-75(3) states that if money is received a replacement asset must be obtained up to one year before or one year after the asset has been disposed of or "within such further time as the Commissioner allows in special circumstances".

Taxation Determination TD 2000/40 attempts to clarify the expression 'special circumstances'. It is stated that this expression is incapable of a precise and exhaustive definition. It will be applied on a case by case basis in regards to the circumstances of each case.

The determination lists three examples where 'special circumstances' would be applied. Example three states:

Graeme had a commercial property compulsory acquired by a State authority. Graeme is having a protracted legal dispute with the authority over the quantum of the compensation. On these facts, we would accept that there are special circumstances to allow further time.

Detailed reasoning

In this case there is a clear Taxation Determination on the question raised by the Taxpayer. This Taxation Determination outlines three examples of circumstances where the Commissioner will use his discretion to allow an extension of time for obtaining a replacement asset in 'special circumstances'. As stated above 'example three' states that the Commissioner will allow an extension of time when there is a legal dispute about the quantum of damages that will be paid for an asset that was compulsorily acquired by the government.

The Taxpayer had their asset, a commercial rental property compulsorily acquired by the government. The Taxpayer's valuation of the property and the determination of compensation by the Valuer General differ. As such the Taxpayer has commenced proceedings in the Land and Environmental Court in an attempt to obtain more compensation for their property.

The Taxpayer's legal representation has provided a timeline which outlines the expected progress of the case. However, as with most cases in the court system there are likely to be delays. This timeline also does not account for appeals by either party. The solicitors have stated that the case may be long and drawn out.

The Taxpayer has asked for an extension of time. Considering the timetable attached to the application it is fair and equitable in the circumstances for the Commissioner to allow an extension of time.