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Ruling

Subject: CGT - Small business concessions

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 the replacement asset to be acquired?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

01 July 2009

Relevant facts and circumstances

You carry out business activities on a couple of properties.

As a result of a property settlement with your former spouse, you planned to sell these properties and use your part of the proceeds to buy a replacement asset.

The first property was sold (contracts signed) in July 2007.

You commenced the sale of the second property in early 2008 and also began searching for a replacement asset; however you were not in a financial position to buy a replacement asset until you sold the second property.

During this time it was difficult to sell because of continuing drought, rising interest rates and the GFC.

You found a replacement asset within the two year period, which you eventually purchased, however you could not confirm your interest by signing the contract until the second property was sold.

Contracts for sale of your second property were exchanged in August 2010.

You signed a contract for the replacement asset in August 2010.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 Subdivision 152-A.

Reasons for decision

Note all subsequent legislative references are to the ITAA 1997 unless otherwise stated.

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.

To obtain a roll-over you are required 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 as per paragraph 104-185(1)(a); however the Commissioner may exercise his discretion to extend those time limits (Subsection 104-190(2)).

In Determining if the discretion would be exercised the Commissioner considers 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.

In your situation, as a result of a property settlement with your former spouse, you planned to sell two properties and use your part of the proceeds to buy a replacement asset.

You sold the first property in July 2007; however due to the drought, rising interest rates and the GFC you had difficulties selling your second property.

Although you found your replacement asset within the two year period, you were not in a financial position to buy it until you sold the second property.

After selling your second property you signed a contract for the replacement asset in August 2010.

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

As such the Commissioner has applied his discretion and granted an extension of time for you to acquire a replacement asset. The extension will allow the property acquired in August 2010 to be considered a replacement asset for the property sold in July 2007 for the purposes of paragraph 104-185(1)(a).