Edited version of private advice

Authorisation Number: 1051881922006

Date of advice: 10 August 2021

Ruling

Subject: Replacement asset rollover

Question

Will the Commissioner exercise his discretion under section 124-75(3)(b) of the Income Tax Assessment Act 1997 to allow the taxpayer an additional time period to acquire a replacement asset?

Answer

Yes. The Commissioner will exercise his discretion under section 124-75(3)(b) of the Income Tax Assessment Act 1997 and allow an additional time period to acquire a replacement asset.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You advised that you previously owned the whole lot of land at XXXX. The property is also known as XXXX. You have used the land predominantly for farming purposes.

The land was compulsory acquired by the XXXX Council ('the Authority).

An offer for compensation was made by the Authority. You are seeking legal advice in relation to this offer.

As at date of application you have not received settlement regarding the compensation amount to be paid. You are unsure as to when the quantum of compensation will be settled between yourself and the Authority.

You have full intention of purchasing multiple replacement assets with the same or similar purpose as to the asset that was compulsorily acquired upon receiving the compensation sum.

Based on the above extenuating circumstances, you are seeking an extension of time to purchase the replacement assets.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

Reasons for decision

Under subsection 124-70(1) of the ITAA 1997, 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.

Subsection 995-1(1) of the ITAA 1997 defines an Australian government agency as a Commonwealth, a State or a Territory, or an authority of Commonwealth or of a State or Territory.

If you receive money as a result of the compulsory acquisition, you can only choose a rollover if you incur expenditure in acquiring another capital gains tax asset.

Under subsection 124-75(3) of the ITAA 1997, you must incur at least some of the expenditure no earlier than one year before the event happens or, within one year after the end of the income year in which the event happens. Under paragraph 124-75(3)(b) of the ITAA 1997, you would need to acquire a replacement asset no later than one year after the end of the income year in which the gazettal took place. You have applied to the Commissioner to allow further time under special circumstances.

Taxation Determination TD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997? (TD 2000/40) provides guidelines as to when the Commissioner will extend the period in which a replacement asset can be acquired, in particular what are special circumstances.

Example 3 in TD 2000/40 provides an example in which a taxpayer's asset is compulsorily acquired by a State authority. The taxpayer is then involved in a protracted legal dispute with the authority over the quantum of the compensation. In this instance, the Commissioner accepts that there are special circumstances to allow further time for the taxpayer.

The lack of certainty as to the amount and timing of the compensation to be received has delayed the ability of the taxpayer to search for and acquire an appropriate replacement asset.

We consider that you have made continuing efforts and have done what is reasonable in attempting to acquire a replacement asset as per example 3 in TD 2000/40.

Accordingly, the Commissioner will exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow an additional time to acquire the replacement assets.