Edited version of private advice

Authorisation Number: 1051524420438

Date of advice: 31 May 2019

Ruling

Subject: CGT - Commissioner's Discretion - Extension of time to acquire a rollover replacement asset

Question 1

Will the Commissioner exercise his discretion and allow the taxpayer until 30 June 2020 to acquire a replacement asset, pursuant to subsection 124-75(3) of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following periods:

1 July 2017 to 30 June 2018

1 July 2018 to 30 June 2019

1 July 2019 to 30 June 2020

The scheme commences on:

12 February 2018

Relevant facts and circumstances

The Trust (the taxpayer) is an Australian discretionary trust.

The Trust acquired a property prior to the introduction of Capital Gains Tax ('CGT'). The property was leased to third parties and from which rental income was derived.

The property was compulsorily acquired by a State authority.

The taxpayer's primary decision maker took steps soon after disposal of the property to find and negotiate to purchase a replacement asset. However, due to the fact that this individual had numerous health concerns and recurring medical treatments over an extended period of time, the taxpayer had difficulties acquiring a replacement asset.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-10(6)

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 127-75

Income Tax Assessment Act 1997 subsection 127-75(1)

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

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

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997.

Involuntary disposal of a CGT asset

Section 124-70 describes different incidents when a roll-over is available to an entity if that incident happens to the Capital Gains Tax ('CGT') asset of that entity. According to subsection 124-70(1), an entity is able to choose a roll-over if the CGT asset that the entity owns is compulsorily acquired by an Australian government agency. Subsection 124-70(2) states that to be eligible for a roll-over, the entity must receive money or another CGT asset (except a car, motor cycle or similar vehicle) or both as compensation for the event happening.

Subsection 995-1(1) defines an Australian government agency as a Commonwealth, a State or a Territory or an authority of Commonwealth or of a State or Territory. In your case, the property was compulsorily acquired by a State Agency and you received full payment of money as compensation for the acquisition.

Therefore you are able to choose a roll-over in relation to the capital gain that you received from the compulsory acquisition, provided other requirements as stated in section 124-75 are met.

According to section 124-75:

124-75(1) If you receive money for the event happening, you can choose to obtain a roll-over only if these other requirements are satisfied.

124-75(2) You must:

(a)         incur expenditure in acquiring another CGT asset (except a depreciating asset whose decline in value is worked out under Division 40 or deductions for which are calculated under Division 328) or;

(b)         if part of the original asset is lost or destroyed - incur expenditure of a capital nature in repairing or restoring it.

124-75(3) at least some of the expenditure must be incurred:

(a)         no earlier than one year, or within such further time as the Commissioner allows in special circumstances, before the event happens; or

(b)         no later than one year, or within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens.

In your case, your original asset, namely the Property, is not lost or destroyed. Therefore the relevant provision for you is paragraph 124-75(2)(a) whereby you are required to incur expenditure to acquire another CGT asset.

Subsection 124-75(3) requires you to incur some of the expenditure either one year before or one year after the end of the income year in which the event happens or within such further time as the Commissioner allows in special circumstances.

The time of the event is determined by subsection 104-10(6). The time of the event will be the earliest of:

·                      when you received full compensation from the entity; or

·                      when the entity becomes the asset's owner; or

·                      when the entity entered it under that power, or

·                      when the entity took possession under that power.

In your case, your property was compulsorily acquired. You received full compensation payment. The time of the event under subsection 104-10(6) is therefore the date when the government authority compulsory acquired the property.

You did not acquire a replacement CGT asset prior to the payment of compensation and therefore to satisfy subsection 124-75(3), a replacement CGT asset must be acquired no later than 30 June 2019, being one year after the end of the income year in which the event happened (paragraph 124-75(3)(b)). However, to date you were unable to acquire a replacement asset due to the fact that the primary decision maker has an extensive history of medical conditions and had major surgery. You have provided all supporting documentations to support your special circumstances.

You also have provided information to support steps you have taken in finding and negotiating to acquire a replacement asset soon after the disposal of the property to date. Negotiations to purchase a replacement asset have to date fallen through.

Example 2 in TD 2000/40 is relevant as it provides an example of special circumstances that is relevant to your special circumstances.

On the basis of the guidelines in TD 2000/40, it is considered that your situation falls within the scope of what is considered special circumstances which would warrant the Commissioner allowing further time under paragraph 124-75(3)(b).

Application to your circumstances

The Commissioner will exercise his discretion under subsection 124-75(3) of the ITAA 1997 to allow you until 30 June 2020 to acquire a replacement asset.