Edited version of private advice

Authorisation Number: 1051671678384

Date of advice: 04 May 2020

Ruling

Subject: Replacement asset period

Question

Will theCommissioner extend the replacement asset period under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, extension of time to 30 April 2021.

This ruling applies for the following period:

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commences on:

1 July 2016

Relevant facts and circumstances

1. Original CGT event occurred on 15 July 2016.

2. Negotiations are ongoing with parent as part of the succession process to purchase a replacement asset.

3. Succession has still not eventuated.

4. It is the intention of all relevant parties including the parent that the succession process will occur.

5. The succession process is expected to be finalised in the next 12 months.

Relevant legislative provisions

Subsection 104-190(2) of the Income Tax Assessment Act 1997

Reasons for decision

According to section 152-410 of the ITAA 1997, a taxpayer can choose to obtain a roll-over under Subdivision 152-E of the ITAA 1997 for a capital gain if the basic conditions in Subdivision 152-A of the ITAA 1997are satisfied.

Section 152-10 of the ITAA 1997 provides the basic conditions for Small Business CGT Concession as follows:

152-10(1) A capital gain (except a capital gain from CGT event K7) you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain:

(a)  A CGT event happens in relation to a CGT asset of yours in an income year;

(b)  The event would (apart from this Division) have resulted in the gain;

(c)   At least one of the following applies:

(i)            You are a small business entity for the income year;

(ii)           You satisfy the maximum net asset value test

(iii)          You are a partner in a partnership that is a small business entity for the income year and the CGT asset is an interest in an asset of the partnership;

(iv)          The conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year;

(d)  The CGT asset satisfies the active asset test.

The applicant is required to acquire a replacement asset within the replacement asset period as stated in paragraph 104-185(1)(a) of the ITAA 1997. Under this paragraph, replacement period means one year before and two years after the CGT event for which the roll-over was obtained.

The CGT event took place on 15 July 2016, the applicant had until 15 July 2018 to acquire a replacement asset.

However, the Commissioner can extend the replacement asset period under 104-190(2) of the ITAA 1997.

The Commissioner looks at the facts of each case to determine whether to extend time under subsection 104-190(2) of the ITAA 1997.

QC18383 on the ATO's website provides certain factors that the Commissioner will consider when allowing an extension of time:

·         an acceptable explanation for the period of extension requested

·         it would be fair and equitable in the circumstances to provide such an extension;

·         whether prejudice to the ATO 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);

·         whether it is fair and equitable to people in a similar position and the wider public

·         whether any mischief is involved

Considering the above facts and circumstances, the Commissioner has decided under subsection 104-190(2) of the ITAA 1997 to extend the replacement asset period until 30 April 2021.