Edited version of your private ruling

Authorisation Number: 1012455669304

Ruling

Subject: Extension of time to acquire a replacement asset

Question

Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to further extend the time period until 31 October 20XX, to allow you to acquire a replacement asset?

Answer

Yes, an extension is granted until 31 October 20XX.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You previously received a Private Ruling granting an extension of time until August 20XX to acquire (and make improvements to) a replacement asset.

Relevant facts from original private ruling:

You entered into a contract in 200Y to sell business property.

You made a gross capital gain in the 200Y financial year.

You stated that you satisfied the basic conditions for applying the small business concessions as:

§ you satisfy the $5 million maximum net asset value test

§ you were carrying on a business

§ both the business and the commercial land and building that were sold were active at the time the contracts were signed and when settlement was effected.

You applied the 50% small business active asset reduction to the capital gain and you then applied the small business rollover exemption.

You were required to acquire a replacement asset by June 200Z to satisfy the replacement rollover concession.

During the following 2 year period, you actively searched for a business to purchase, including entering into a contract, which fell though.

You entered into a contract to acquire another business and accepted a quote on the cost of improvements and renovations to the building.

At the time of that Ruling request, you were still awaiting approval from the council and the building's owners, and anticipated a lengthy delay.

You requested an extension of time in relation to the acquisition of the replacement asset.

The extension was granted until August 20XX.

Further facts that have arisen since the original private ruling:

Between 20VV and June 20XX, ongoing verbal and email discussions occurred at various times regarding the possible purchase of the property. Evidence of some of these negotiations has been provided. The protracted negotiations eventually resulted in you purchasing the property freehold in late 20XX.

You advise that you still intend to perform the improvements although this has not yet been completed due to the considerable time to negotiate the purchase price.

Due to the protracted negotiations, you request a further extension to the time allowed to acquire a replacement asset until 31 October 20XX.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Division 152

Reasons for decision

Division 152 of the ITAA 1997 details small business relief from CGT by way of various concessions. In order to utilise these concessions, mandatory basic conditions must be satisfied for all of the concessions and additional conditions also need to be satisfied, depending on the concession(s) chosen.

In order to apply the small business rollover concession, a replacement asset must be acquired within two years after the relevant CGT event.

Subsection 104-190(2) of the ITAA 1997 explains that the Commissioner may extend the replacement asset period.

The Advanced Guide to Capital Gains Tax Concessions for Small Business 2011-12 summarises the guiding principles for the exercise of the discretion. Generally, the following factors are relevant:

· 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.

Application to your circumstances:

You sold your prior business in June 200Y for a gross capital gain. Therefore, you were required to acquire a replacement asset by June 200Z.

You advised that you were delayed in replacing your asset due to a lengthy period of unsuccessful but active searching for a new business to purchase.

In July 200Z you entered into a contract to purchase new property and an associated business.

You then engaged an architect to assess and report on the improvements and renovations required to be made on these replacement assets.

You had requested, and were granted, an extension of time to August 2009 to purchase these assets and make the improvements as part of a replacement asset.

Since then, ongoing negotiations have been undertaken, resulting in the eventual purchase of the business in late 20XX.

With regard to the factors considered in determining if the discretion would be exercised:

§ you have provided an acceptable explanation for the period of extension required - the delays in purchasing the business were caused by a lengthy negotiation process;

§ although the extension period is several years after the legislated rollover asset replacement date, this further requested extension is less than 3 months after than the original extension period already granted;

§ there is no prejudice to the Commissioner;

§ it is fair and equitable in the circumstances to provide such an extension.

Therefore, the Commissioner will exercise his discretion under subsection 104-190(2) of the ITAA 1997 to grant the further extension.