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Edited version of your written advice
Authorisation Number: 1051212058877
Date of advice: 10 April 2017
Ruling
Subject: Capital gains tax - extension of time to obtain replacement asset
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 periods:
Year ending 30 June 2018.
The scheme commences on:
1 July 2015.
Relevant facts and circumstances
Entity A owned the property.
Entity A was issued with a proposed acquisition notice for the property pursuant to the relevant legislation. The property was compulsorily acquired.
Entity A and related entities have commenced proceedings in the relevant Court in dispute of the market value compensation to be received for the compulsory acquisition of the property.
Entity A has received some compensation for the compulsory acquisition however the outstanding amount due to Entity A has not yet been determined by the Court.
Entity A has been seeking a replacement asset that has the same or similar characteristics to the property since its compulsory acquisition.
Relevant legislative provisions
Income Tax Assessment Act 1997 subdivision 124-B,
Income Tax Assessment Act 1997 subsection 124-70(1) and
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. Under subsection 124-70 (1) of the ITAA 1997 you may be entitled to choose a rollover if a CGT asset that you own is compulsorily acquired by an Australian government agency.
If you receive money as a result of the compulsory acquisition, 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 in the acquisition of a replacement asset 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.
The Commissioner may allow further time to acquire a replacement CGT asset in special circumstances. Special circumstances are not defined in the ITAA 1997 however protracted legal disputes can be considered to be special circumstances, as outlined in the following example in Taxation Determination TD 2000/40:
Graeme had a commercial property compulsorily acquired by a State authority. Graeme is having a protracted legal dispute with the authority over the quantum of the compensation. On these facts, we would accept that there are special circumstances to allow further time.
Your case is similar to the example provided in TD 2000/40 in that there is a legal over the quantum of compensation you received. The legal dispute has not yet been settled. Taking your full circumstances and the above principles into account, the Commissioner will allow an extension of time to acquire a replacement asset.