Edited version of private advice

Authorisation Number: 1051764900480

Date of advice: 13 October 2020

Ruling

Subject: Small business rollover

Question

Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension to the replacement asset period to August 2021?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2021

Year ending 30 June 2022

The scheme commences on:

August 2018

Relevant facts and circumstances

You owned a commercial property (the Property), which you formerly occupied and used in your business for the majority of your ownership period. The Property satisfied the conditions of an active asset contained in section 152-35 and defined in section 152-40 of the Income Tax Assessment Act 1997 (ITAA 1997).You sold the property in 2018.

In the absence of an extension by the Commissioner under subsection 104-190(2) of the ITAA 1997, the replacement asset period expired in August 2020.

During the replacement asset period you have been actively searching for a suitable replacement property, to be occupied by you. However, you have not yet been successful in acquiring a suitable replacement property.

You are still very determined to acquire a replacement asset, but the current environment has made it very difficult to find a suitable replacement property.

You have engaged three agents to identify suitable properties for your review.

You believe the prospects of finding a suitable property are becoming more promising and consider that a further 12-months would provide sufficient time to locate and acquire a suitable replacement property.

Assumption

It is assumed that you satisfy the definition of a 'CGT small business entity' under subsection 152-10(1AA) of the Income Tax Assessment Act 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-190(1A),

Income Tax Assessment Act 1997 subsection 104-190(2),

Income Tax Assessment Act 1997 Subdivision 152-A, and

Income Tax Assessment Act 1997 Subdivision 152-E.

Reasons for decision

Note all subsequent legislative references are to the ITAA 1997 unless otherwise stated.

Subdivision 152-E contains the provisions regarding the small business roll-over relief. Under sections 152-410 and 152-415, the small business roll-over relief allows entities that satisfy the conditions in Subdivision 152-A to defer all or part of each capital gain arising from a CGT event happening to an active asset.

This roll-over is available to the entity even if they have not acquired a replacement asset at the time of claiming the roll-over, however CGTevent J5 will happen under section 104-197 if by the end of the replacement asset period a replacement asset is not acquired or the replacement asset is not an active asset.

Subsection 104-190(1A) provides that the replacement asset period starts one year before the last CGT event in the income year for which you obtain the rollover and ending the later of:

·         two years after that last CGT event; and

·         six months after the latest possible time a possible financial benefit becomes due under a look-through earn-out right relating to the disposal of a CGT asset.

You chose to access the small business roll-over under Subdivision 152-E for the disposal of the Property. In the absence of an extension by the Commissioner under subsection 104-190(2) the replacement asset period expired in August 2020.

Subsection 104-190(2) provides that the Commissioner may extend the replacement asset period.

In determining if the discretion would be exercised the Commissioner has considered 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

·         consideration of the consequences.

You have provided several reasons for requesting that the Commissioner allow an extension to the replacement asset period beyond two years.

You have been making reasonable effort to acquire a suitable replacement property since August 2018 and are undertaking further activities to broaden the prospect of acquiring a replacement asset.

Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow a reasonable extension of time to acquire a replacement asset. As such, the Commissioner will exercise his discretion under subsection 104-190(2) to extend the replacement asset period to August 2021.