Edited version of private advice

Authorisation Number: 1051667619133

Date of advice: 30 April 2020

Ruling

Subject: Income tax - CGT - replacement asset roll-over

Question

Will the Commissioner exercise his discretion under paragraph 124-75(3)(b) of Income Tax Assessment Act 1997 to allow the taxpayer an additional 12 months to acquire another CGT asset?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

20XX

Relevant facts and circumstances

You conduct a business.

One of your main properties for earning income was acquired by the Government.

A compensation agreement was made in relation to the compulsory acquisition of the Property

You have made a capital gain on the disposal of the Property.

Your directors have been searching for a suitable property to purchase as a replacement asset since a certain date.

They have been searching for properties in line with your business and they have been hard to find.

Your directors have assessed numerous properties and made offers and negotiated for the purchase of XX of these but with unsuccessful outcomes.

At a certain date it appeared a suitable property had been found and negotiations over the price for the property were underway however there is limited progress on this due to factors outside your control.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

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

Reasons for decision

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 (ITAA 1997)unless otherwise stated.

Summary

The Commissioner will exercise his discretion under paragraph 124-75(3)(b) to allow you an additional 12 months to acquire another CGT asset.

Detailed reasoning

If a change of ownership triggers Capital Gains Tax (CGT) event A1 as a result of acquisition of a CGT asset by another entity under a power of compulsory acquisition, subsection 104-10(6) provides that the time of the event is the earliest of when compensation is received or when the change of ownership of an asset occurs.

Roll-over relief for the compulsory acquisition of a CGT asset is available where the conditions outlined in Subdivision 124-B are met.

Under subsection 124-70(1), an entity may be able to choose a replacement asset rollover if a CGT asset owned by the entity is compulsorily acquired by an Australian government agency.

A replacement asset roll-over allows you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens.

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.

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 a rollover (subsection 124-70(2)).

Where the owner of the original asset receives money, section 124-75 then provides further requirements which must be satisfied if only money is received for the event happening.

Subsection 124-75(2) requires that the owner of the asset must incur expenditure in acquiring another CGT asset. Paragraph 124-75(3)(b) requires the entity to incur at least some of the expenditure in acquiring this replacement CGT asset 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 determining whether special circumstances exist for the Commissioner to extend the period in which to acquire a replacement asset, Taxation Determination TD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the ITAA 1997? (TD 2000/40) provides guidance on interpreting subsection 124-75(3), in particular what could be considered 'special circumstances'.

TD 2000/40 states that the expression 'special circumstances' by its nature is incapable of a precise or exhaustive definition. 'Special circumstances' depends on the facts of each particular case.

Additionally, under subsection 124-75(4), the replacement asset you purchase must be used in your business.

In determining whether the discretion will be exercised, the Commissioner also considers the following factors:

• whether there is acceptable explanation for the period of the extension requested and that it would be fair and equitable in the circumstances to provide such an extension
• 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
• fairness to people in like positions and the wider public interest, and
• whether there is any mischief involved

Taking into account the efforts made thus far to obtain a suitable replacement asset for the business, the Commissioner accepts that the circumstances outside your control are special circumstances.

Therefore the Commissioner will exercise his discretion under paragraph 124-75(3)(b) to allow the taxpayer an additional 12 months to acquire another CGT asset.