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Edited version of your written advice
Authorisation Number: 1051295591239
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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
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Date of advice: 17 October 2017
Ruling
Subject: Capital Gains Tax - Extension of time to acquire a replacement asset
Question:
Will the Commissioner exercise his discretion to extend the replacement asset period under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to XX/XX/XXXX?
Answer
Yes, an extension will be allowed to XX/XX/XXXX.
This ruling applies for the following periods:
Year ended 30 June 2016
Year ended 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commenced on:
1 July 2015
Relevant facts
Entity A operates a business.
Entity A commenced its business operation in the early 2000s.
Entity A sold its business and its assets a few years ago.
Entity A met the eligibility criteria for the small business capital gains tax (CGT) concessions.
Entity A elected to apply small business CGT concessions in the 2015-16 income year including the replacement asset roll-over.
A capital gain was made on the sale of the business and its assets.
The delay in acquiring a replacement asset is for the following reasons:
● Entity A is seeking to diversify its business by purchasing a commercial property from which Entity A, or an entity that is connected or affiliated with Entity A, will operate a certain type of business. Due to the nature of this proposed new venture, it is taking some time for the Entity A to find a suitable location for the business and obtain the necessary approvals.
● Payment of some of the capital proceeds from the sale of the business and the assets was conditional upon certain events taking place. These conditions were not fulfilled until the 2017 income year. Accordingly, Entity A was not aware until recently of the amount of the actual gain made from the sale of the business and its assets, and thus the amount it would be required to spend in relation to the replacement asset rollover concession.
Entity B is an entity connected with Entity A and acting as agent of Entity A has undertaken negotiations with respect to Entity A obtaining the whole of, or an interest in, leaseholds associated with several properties as a potential replacement asset.
The leaseholds are currently under negotiations and due to significant planning requirements and building works necessary for these sites to be fit for purpose, these negotiations will not conclude before the expiration of the replacement asset period.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Subsection 104-185(1)
Income Tax Assessment Act 1997 Subsection 104-190(2)
Reasons for decision
Unless otherwise specified, all legislative references in the following Reasons for Decision are to the Income Tax Assessment Act 1997.
The small business rollover allows you to defer the capital gain made from a CGT event if you acquire one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain relief are set out in Subdivision 152-A.
For you to obtain a rollover, subsection 104-185(1) requires you to acquire a replacement asset, and that it be an active asset of yours, within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) states that the Commissioner may exercise his discretion to extend those time limits.
In determining if the discretion would be exercised the Commissioner has considered the following factors:
● evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension)
● prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension)
● unsettling of people, other than the Commissioner, or of established practices
● fairness to people in like positions and the wider public interest
● whether any mischief is involved, and
● consequences of the decision.
Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow a reasonable extension to the time limit. Entity A has provided a reasonable explanation given the circumstances and an extension will be granted until XX/XX/XXXX.