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Edited version of private advice
Authorisation Number: 1012653404378
Ruling
Subject: CGT - compulsory acquisition rollover
Question 1
Will the Commissioner exercise his discretion under subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time required to obtain a replacement asset for a compulsorily acquired asset?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
A portion of the land owned by the company was compulsorily acquired.
The company received an advance on the amount of compensation that may be payable to the company.
The company (and related entities) are currently preparing a formal claim for compensation including various expert reports.
The company acquired the property prior to 20 September 1985.
Suitable replacement properties in the area are in short supply; however the company has been actively seeking suitable properties since receipt of the advance payment and has recently located a replacement property that is suitable.
However, the company is reluctant to commit to the acquisition of the replacement asset until the final quantum of compensation is finalised.
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 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 Taxation Determination TD 2000/40, the Commissioner may exercise his discretion to allow further time to acquire the replacement asset in certain circumstances.
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.