Edited version of private advice

Authorisation Number: 1051925633375

Date of advice: 23 November 2021

Ruling

Subject: Small business roll-over relief

Question

Pursuant to subsection 104-190(2) of the ITAA 1997, will the Commissioner allow the replacement asset period to be extended to XX/XX/XXXX?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June XX

The scheme commences on:

XX/XX/XXXX

Relevant facts and circumstances

A taxpayer owned and operated a small business. The taxpayer entered into a contract to sell the business with settlement due two months after.

Immediately prior to settlement of the sales contract, a legal dispute was raised by the purchaser.

The legal dispute took over a year to be resolved which exhausted much of the two year replacement asset period. The uncertainties in regard to the outcome of the dispute meant that the taxpayer was not able to determine the amount of capital available to acquire a replacement asset.

The sale of the business resulted in a capital gain being made which resulted in the taxpayer choosing the small business roll-over in that income year.

Save for the dispute, the replacement asset period would have been two years from the date the contract was entered into. During the remaining time of the replacement asset period, the taxpayer had looked into other businesses to acquire as replacement asset. However, due to the economic uncertainties from the COVID-19 pandemic and the process to resolve the dispute meant that acquiring a replacement asset within the two year period was severely constrained.

The taxpayer is presently continuing to look for a replacement asset to acquire. The taxpayer is undertaking research as well as making enquiries with a business brokers for the acquisition of a suitable commercial property or a going concern business.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-400

Income Tax Assessment Act 1997 subsection 104-197(1)

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

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

Reasons for decision

The small business roll-over allows you to defer all or part of a capital gain made from a CGT event happening to an active asset of yours.[1] If you choose to apply the small business roll-over, you must have acquired a replacement asset before the end of the replacement asset period.

You may be liable to pay income tax if choose to apply the small business roll-over and you have not acquired a replacement asset by the end of the replacement asset period.[2]

The replacement asset period is the period starting one year before and ending two years after the last CGT event in the income year for which you obtain the roll-over.[3]

The Commissioner may extend the replacement asset period in certain circumstances.[4]

The relevant factors in determining whether to extend the replacement asset period are:

•                     whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension

•                     whether there is any prejudice to the Commissioner which may result if the additional time is 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

•                     the need to ensure fairness to people in like positions and the wider public interest

•                     whether there is any mischief involved, and

•                     a consideration of the consequences.

Having considered the relevant factors above, and the particular circumstances of taxpayer, the Commissioner will grant an extension to the replacement asset period to XX/XX/XXXX.

[1] Section 152-400

[2] Subsection 104-197(1)

[3] Subsection 104-190(1A)

[4] Subsection 104-190(2)