Edited version of your private ruling

Authorisation Number: 1012476190915

Ruling

Subject: small business concessions

Question

Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and grant an extension of time to acquire a replacement asset?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The company was incorporated in the 200X financial year.

Soon after incorporation, the company commenced a business.

The company sold the business in the relevant financial year.

The company received an upfront payment and under the contract, a further payment was payable at least two years after completion and further amounts which were contingent on the satisfaction of revenue targets.

The contract also set out the earn-out rights.

The earn-out is structured as X separate payments, each dependant on performance for particular periods post completion.

The company was in negotiations to purchase a business, however the acquisition did not progress.

You have found suitable alternative replacement assets, but the details are yet to be finalised.

The company satisfies the basic conditions for the small business CGT concessions.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10,

Income Tax Assessment Act 1997 section 104-185 and

Income Tax Assessment Act 1997 section 104-190.

Reasons for decision

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 of the Income Tax Assessment Act 1997 (ITAA 1997).

For you to obtain a roll-over, subsection 104-185(1) of the ITAA 1997 requires you to acquire a replacement asset, and that it be an active asset of yours, within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) states that the Commissioner may exercise his discretion to extend those time limits.

You disposed of your business in the relevant financial year. The two year limit in which to find a replacement has consequently expired.

As per the sale contract, you were entitled to an upfront payment, and a deferred payment approximately X years after the contract was executed. You were in negotiations to purchase a business, however the acquisition did not progress. You have found suitable alternative replacement assets, however the details are yet to be finalised.

In determining if the discretion would be exercised the Commissioner has considered the following factors:

· evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension)

· prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension)

· unsettling of people, other than the Commissioner, or of established practices

· fairness to people in like positions and the wider public interest

· whether any mischief is involved, and

· consequences of the decision.

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