Edited version of private advice

Authorisation Number: 1051516526583

Date of advice: 30 May 2019

Ruling

Subject: Capital gains tax - replacement asset extension of time

Question

Will the Commissioner exercise his discretion and extend the time for obtaining a replacement asset until 30 June 2020?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2019

Year ending 30 June 2020

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You jointly owned a terrace house.

You owned a 50% share in the property.

You and the trust owned this property for three years prior to its compulsory acquisition.

The property was rented out with high quality tenants achieving strong rental yields.

The property was compulsorily acquired in the 2017 income year by a government agency.

You and the trust were paid a compensation amount.

You intend on purchasing another rental property to replace the compulsorily acquired property in the same area.

You are having difficulties purchasing a property in your price range and would like longer to find a cheaper property.

You have tried to negotiate the purchase of four properties without success.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 124-70

Income Tax Assessment Act 1997 Section 124-75

Income Tax Assessment Act 1997 Subsection 124-75(2)

Income Tax Assessment Act 1997 Subsection 124-75(3)

Income Tax Assessment Act 1997 Paragraph 124-75(3)(a)

Income Tax Assessment Act 1997 Paragraph 124-75(3)(b)

Reasons for decision

Section 124-70 of the Income Tax Assessment Act 1997 (ITAA 1997) allows CGT roll-over relief if an asset owned by the taxpayer is compulsorily acquired by an Australian government agency. A further requirement is that the owner of the original asset must receive money or another CGT asset or both for the CGT event to be eligible for roll-over. On satisfying these conditions, section 124-75 of the ITAA 1997 provides other requirements which must be satisfied if money is received for the event happening.

Under subsection 124-75(2) of the ITAA 1997, the owner of the asset must incur expenditure in acquiring another CGT asset. In accordance with paragraph 124 75 (3) (a) of the ITAA 1997, at least some of the expenditure must be incurred no earlier than one year before the event happens, or under paragraph 124-75(3) (b) of the ITAA 1997, no later than one year after the end of the income year in which the event happens, or within such time as the Commissioner allows in special circumstances.

To meet the requirements of paragraph 124-75(3) (b) of the ITAA 1997 the new asset must be acquired on or before 30 June 2018 or within such time as the Commissioner allows in special circumstances.

You are seeking an extension to 30 June 2020.

Commissioners Discretion

In determining if the discretion to extend the replacement asset period should be exercised, 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

·         fairness to people in like positions and the wider public interest

·         whether there is any mischief involved and

·         the consequences of the decision.

In prior cases, the Commissioner has granted an extension of time where there have been special circumstances and an acceptable explanation for the period of extension requested. These can include, but are not limited to medical or financial issues, personal issues or natural disasters.

In your circumstances you have accepted a payment from the Government agency for the compulsory acquisition of your investment property.

You have not yet acquired a replacement asset as the property prices are too high and you have not been able to find a property in your price range in your desired location.

In your case, there were no medical, personal or financial issues or any other compelling reasons that prevented you from seeking a replacement asset.

Having considered all the relevant factors, the Commissioner is of the opinion that you have not provided an acceptable explanation for the period of extension requested.

The Commissioner is of the opinion that you have had sufficient time to obtain a replacement asset in the desired location or another location.

Therefore, in your case, for the reasons discussed above, the Commissioner will not exercise the discretion under subsection 104-190(2) ITAA 1997 to extend the replacement asset period.