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Edited version of your written advice
Authorisation Number: 1051346172493
Date of advice: 5 March 2018
Ruling
Subject: Compulsory acquisition extension of time
Question
Will the Commissioner exercise the discretion available under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to provide you with an extension of time to acquire a replacement asset?
Answer
Yes, to 30 June 2020.
This ruling applies for the following periods:
Year ending 30 June 2019
Year ending 30 June 2020
1 July 2018
Relevant facts and circumstances
Entity X as trustee for the trust owned properties that it used as investment assets.
The Government compulsorily acquired these properties.
The trust lodged a claim for compensation with the Government in the 2009-10 financial year.
Negotiations to settle the claim early failed and the Government only agreed to pay part of the compensation (advance).
The advance payment was not sufficient for the trust to purchase a similar property as a replacement.
The matter is likely to be referred to Court to determine full and fair amount of compensation.
Based on legal advice, the trust has now engaged an engineer, a town planner and a valuer in preparation for the claim.
The trust has also engaged the service of barristers who are now preparing the case.
Without full compensation being determined and received, it is impossible for the trust to purchase replacement assets similar to the assets compulsorily acquired.
A “without prejudice” meeting was held in xxxx, but an agreement could not be reached on the amount of fair compensation
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 124-70(1)
Income Tax Assessment Act 1997 Section 124-75
Income Tax Assessment Act 1997 Subsection 124-75(3)
Reasons for decision
Under subsection 124-70(1) of the ITAA 1997 you may be able to choose a roll-over capital gains tax (CGT) asset is compulsorily acquired by an Australian Government agency. If you receive money for the sale of the asset then further conditions are imposed by section 124-75 of the ITAA 1997.
Subsection 124-75(3) of the ITAA 1997 requires you to incur expenditure in acquiring another CGT asset no earlier than one year before the disposal happens and no later than one year after the end of the income year in which the disposal happens, or within such further time as the Commissioner allows in special circumstances.
Taxation Determination TD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997? provides guidelines as to when the Commissioner will extend the period in which a replacement asset can be acquired, in particular what are special circumstances.
Example 3 in TD 2000/40 provides an example of special circumstances including a ‘protracted legal dispute with the authority over the quantum of the compensation’ and in this instance the Commissioner would allow an extension.
In addition, in determining if the discretion would be exercised, the Commissioner will consider the following factors:
● 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, and
● a consideration of the consequences.
Application to your circumstances
The trust’s circumstances are similar to those found in TD 2000/40 as the amount of the compensation for the compulsory acquisition of the trust’s assets is yet to be determined and it would be difficult for the trust to acquire a replacement asset.
This is an acceptable explanation for the period of extension requested. The Commissioner will exercise his discretion and extend the time the trust has to purchase a replacement asset until 30 June 2020.