Edited version of your written advice

Authorisation Number: 1051197801278

Date of advice: 7 March 2017

Ruling

Subject: Capital Gains Tax - Small business concessions - Extension of replacement asset period

Question

Will the Commissioner exercise his discretion to extend the replacement asset period pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the small business capital gains tax (CGT) replacement asset roll-over relief?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20BB

Year ending 30 June 20CC.

Year ending 30 June 20DD

The scheme commences on:

February 20AA

Relevant facts and circumstances

You sold your business in 20AA

You applied the small business exemption rollover in relation to the goodwill of the business with the intention of purchasing a replacement business within two years.

You investigated businesses around Town A and found a business you thought may be suitable.

You agreed to work as an employee of the business to decide if it was a business you wanted to purchase.

You were employed in this business for a couple of months.

You decided that this business was not suitable for you and your family.

You are looking to provide a specialised state of the art service, however you have realised there are already like businesses in Town A.

You conducted research and found that there was a gap in the market in Town B, as the shift in the industry had not taken place, as it had in Town A.

You travelled to Town B on a number of occasions with your family to conduct research and see if you and your family would be able to reside there.

On one of these occasions, you met with a broker who had a relevant business for sale, however, you could not agree on a suitable price with the vendor.

In 20BB, you and your family moved to Town B.

You met with several business owners in Town B before the end of 20BB.

You are currently exploring two potential opportunities:

● Where a business owner you had met with in 20BB was interesting in selling their business, however not before the end of the asset rollover period. This opportunity is still being investigated.

● Where you had a meeting with another Town B business professional in 20CC in relation to setting up a shop alongside some other specialty businesses. This process is expected to take another 12 months.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 Subsection 104-185(1)

Income Tax Assessment Act 1997 Subsection 104-190(2)

Income Tax Assessment Act 1997 Section 104-197

Income Tax Assessment Act 1997 Section 104-198

Reasons for decision

The rules covering the small business roll-over are contained in Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997). The small business roll-over allows you to defer all or part of a capital gain from a capital gains tax (CGT) event happening to an active asset.

CGT event J5 happens if you choose a small business roll-over under Subdivision 152E of the ITAA 1997 and you have not acquired a replacement asset by the end of the replacement asset period.

The replacement asset period is the period starting one year before and ending two years after the last CGT event in the income year for which you obtain the roll-over.

The replacement asset period may be extended or modified by the Commissioner.

In determining whether to allow an extended asset replacement period the Commissioner considers the following factors:

● whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension

● whether there is any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension)

● whether there is any unsettling of people, other than the Commissioner, or of established practices

● the need to ensure fairness to people in like positions and the wider public interest

● whether there is mischief involved, and

● the consequences of the decision.

You have made attempts to acquire a replacement asset (and are currently in negotiations for the purchase of an asset). Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions. There is also no evidence of any mischief involved.

Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner will exercise his discretion to extend the replacement asset period for 12 months.

Additional information

This ruling has not considered your eligibility for the small business rollover concession. You should ensure that you satisfy the basic conditions and the other conditions relevant for the concession. More information can be found at Capital gains tax concessions for small business, which is available on our website www.ato.gov.au.