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Edited version of your private ruling
Authorisation Number: 1012454004201
Ruling
Subject: CGT - compulsory acquisition - extension to acquire replacement asset
Question 1
Will the Commissioner exercise his discretion under subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to further extend the time required to obtain a replacement asset for a compulsorily acquired asset?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts and circumstances
The trust previously owned property.
This property was compulsorily acquired by a government authority in the relevant financial year.
The trust was paid compensation for the property.
It has proved difficult for the trust to procure a property of similar characteristics as the one resumed. The market downturn has restricted the available properties for inspection.
You have provided correspondence from multiple real estate agents that evidence a number of properties that have been inspected. These properties did not meet the trust's requirements but there is an indication that there is likely to be suitable properties enter the market in the next 12 months as the market conditions ease.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 124-B
Income Tax Assessment Act 1997 Subsection 124-75(3)
Reasons for decision
Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) explains the circumstances when a rollover is available for an asset that is compulsorily acquired, lost or destroyed.
If you receive money as a result of the compulsory acquisition, you can only choose a rollover if you incur expenditure in acquiring another capital gains tax (CGT) asset. Under subsection 124-75(3) of the ITAA 1997, you must incur at least some of the expenditure no earlier than one year before the event happens or, within one year after the end of the income year in which the event happens.
As per example 2 in paragraph 5 of Taxation Determination TD 2000/40, the Commissioner may exercise his discretion to allow further time where you have done what is reasonable to acquire a replacement asset.
Numerous properties have been inspected in an attempt to acquire a replacement asset; however these properties have not met the trust's requirements. We consider that you have made continuing efforts and have done what is reasonable in attempting to acquire a replacement asset as per example 2 in TD 2000/40.
Accordingly, 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 to 30 June 2013.
Further information
If you do not use all of the money you received to replace the original asset, this affects your CGT obligation. The amount of capital gain you include on your tax return depends on whether the capital gain is more or less than the difference between the amount you received and the cost of the repair or replacement.
If the capital gain is more than that difference, you reduce your capital gain to the amount of the excess. Include this amount on your tax return in the year the original CGT event happened. This capital gain may be eligible for the CGT discount. Further information is available on our website www.ato.gov.au, in the factsheet Involuntary disposal of a CGT asset.