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Edited version of your written advice
Authorisation Number: 1012940333035
Date of advice: 22 January 2016
Ruling
Subject: CGT - small business concessions - rollover
Question
Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commenced on:
1 July 2015
Relevant facts and circumstances
The trust disposed of an asset.
The purchase price for the sale comprised of cash, shares and an earnout amount.
The earnout payments were paid over numerous years.
The original agreement was complex and difficult to contemplate; the earnout provisions are about to be disputed through court proceedings.
Accordingly, there will be an extended period of time before the trust can ascertain the amount available to fund a replacement asset.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 104-190(2)
Reasons for decision
Where a taxpayer elects to take advantage of the small business rollover, there are rollover conditions that must be satisfied by the end of the replacement asset period. This period starts one year before and ends two years after the last CGT event that occurs in the income year for which you choose the rollover. However the Commissioner may extend the replacement asset period in certain circumstances (subsection 104-190(2) of the Income Tax Assessment Act 1997).
The relevant factors in determining whether to extend the replacement asset period are:
• 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
• a consideration of the consequences.
The trust rolled over a capital gain under the small business rollover for a CGT event. Due to the nature of the sale agreement, the trust was receiving earn out payments over a period of years and there is pending legal action in relation to these amounts. Accordingly, the trust has been unable to ascertain the amount it would have to fund a replacement asset.
Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner has applied his discretion and will extend the asset replacement period.