Edited version of your written advice

Authorisation Number: 1012852231311

Date of advice: 31 August 2015

Ruling

Subject: Capital gains tax - replacement asset roll over - Commissioner's discretion

Question 1:

Will the Commissioner allow you further time until 30 June 2016 under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to acquire a replacement capital gains tax (CGT) asset?

Answer

Yes.

Question 2:

Will paragraph 124-85(3) of the ITAA 1997 apply in relation to the compulsory acquisition?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2016

The scheme commenced on:

1 July 20ZZ

Relevant facts

You acquired land prior to 19 September 1985.

You became aware that the land was designated for compulsory acquisition in 20XX

You obtained legal advice in relation to the compulsory acquisition.

Your property was compulsorily acquired by a state authority.

You received an initial amount in compensation which represented a proportion of the proposed sale value.

You attempted to negotiate with the state authority and the matter was listed for hearing in 20YY.

The matter was resolved prior to hearing and you received an additional amount in 20ZZ.

You have been unable to purchase a replacement asset due to delays in resolving the dispute.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 124-70

Income Tax Assessment Act 1997 Subsection 124-70(4)

Income Tax Assessment Act 1997 Section 124-75

Income Tax Assessment Act 1997 Subsection 124-75(2)

Income Tax Assessment Act 1997 Subsection 124-75(3)

Income Tax Assessment Act 1997 Paragraph 124-75(3)(a)

Income Tax Assessment Act 1997 Paragraph 124-75(3)(b)

Reasons for decision

Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) explains the circumstances when a replacement asset rollover is available for an asset that is compulsorily acquired, lost or destroyed.

If you receive money as a result of a compulsory acquisition or when a CGT asset is lost or destroyed, you can only choose a rollover if you incur expenditure in acquiring another 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.

This period may be extended in special circumstances as outlined in Taxation Determination TD 2000/40:

In your case, you have been unable to purchase a replacement asset in the prescribed time due a protracted legal dispute with a state authority over the quantum of the compensation. On these facts, we would accept that there are special circumstances to allow further time until 30 June 2016.

Paragraph 124-85(3)(a) of the ITAA 1997 provides the consequences of the roll-over being available in your case. This provision states that if you acquired the original asset before 20 September 1985 and you incurred expenditure in acquiring another CGT asset, you are taken to have acquired the other asset before that day if, in the case of an asset compulsorily acquired, the expenditure is not more than 120% of the market value of the original asset when the event happened.

This means you disregard any capital gain or capital loss you make when a later CGT event happens to the replacement asset