Edited version of private advice

Authorisation Number: 1051977727433

Date of advice: 4 May 2022

Ruling

Subject: CGT - extension of time for incurring expenditure to acquire a replacement asset

Question

Will the Commissioner of Taxation (the Commissioner) exercise his discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time until 30 June 20YY for you to incur expenditure in acquiring a replacement CGT asset that meets the conditions to claim roll-over under Subdivision 124-B of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20YY

The scheme commences on:

20XY

Relevant facts and circumstances

You held a Property as a long-term investment for capital growth and to generate rental income.

You are an Australian tax resident and have been at all relevant times for the purposes of this ruling. You have also provided other details about your circumstances.

An authority of a State compulsorily acquired the Property.

There has been a dispute over the quantum of the compensation for approximately a year since the compulsory acquisition.

You recently received the compensation and there is a short period before time the end of the income year by which you should incur expenditure to acquire a replacement property.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

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 an extension of time until 30 June 20YY for you to incur expenditure in acquiring a replacement CGT asset that meets the conditions to claim roll-over under Subdivision 124-B.

Detailed reasoning

Section 124-70 describes different events when a roll-over is available to an entity if that event happens to the CGT asset of that entity. According to subsection 124-70(1), an entity can choose a roll-over if the CGT asset that the entity owns is compulsorily acquired by an Australian government agency.

Subsection 124-70(2) states that to be eligible for a roll-over, the entity must receive money or another CGT asset (except a car, motorcycle, or similar vehicle) or both as compensation for the event happening.

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

The Property was compulsorily acquired by an authority of a State and you received money as compensation for the CGT event A1 happening.

You were solely an Australian tax resident just before the compulsory acquisition, subsection 124-70(3) does not apply. Therefore, you can choose a roll-over in relation to the capital gain, provided other requirements as stated in section 124-75 are met.

According to section 124-75:

124-75(1) If you receive money for the event happening, you can choose to obtain a roll-over only if these other requirements are satisfied.

124-75(2) You must:

(a) incur expenditure in acquiring another CGT asset (except a depreciating asset whose decline in value is worked out under Division 40 or deductions for which are calculated under Division 328) or.

(b) if part of the original asset is lost or destroyed - incur expenditure of a capital nature in repairing or restoring it.

124-75(3) at least some of the expenditure must be incurred:

(a) no earlier than one year, or within such further time as the Commissioner allows in special circumstances, before the event happens; or

(b) 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.

The relevant provision for you is paragraph 124-75(2)(a) whereby you are required to incur expenditure to acquire another CGT asset to obtain the roll-over.

Subsection 124-75(3) requires you to incur some of the expenditure either one year before or one year after the end of the income year in which the event happens or within such further time as the Commissioner allows in special circumstances.

The time of the CGT event A1 is determined by subsection 104-10(6):

If the asset was *acquired from you by an entity under a power of compulsory acquisition conferred by an *Australian law or a *foreign law, the time of the event is the earliest of:

(a) when you received compensation from the entity; or

(b) when the entity became the asset ' s owner; or

(c) when the entity entered it under that power; or

(d) when the entity took possession under that power.

The authority of a State compulsorily acquired the Property, and you did not receive compensation until approximately a year later. The time of the event under subsection 104-10(6) is therefore the date the Property was compulsorily acquired.

You did not acquire a replacement asset prior to the disposal of the Property therefore to satisfy subsection 124-75(3), you must incur at least some of the expenditure in acquiring another CGT asset no later than 30 June 20XX, (being one year after the end of the income year in which the event happened), or within such further time as the Commissioner allows in special circumstances (paragraph 124-75(3)(b)).

There are no legislative provisions which provide guidance as to what may constitute special circumstances for the purposes of subsection 124-75(3). The matter depends on the facts of each case.

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? explains that the expression special circumstances in the context of subsection 124-75(3) by its nature is incapable of a precise or exhaustive definition. Some examples of special circumstances are provided under the tax determination.

Examples 1 and 3 are relevant to your circumstances. There were delays caused by the dispute over the quantum of the compensation and there is only a short period within which to incur at least some of the expenditure to acquire another CGT asset.

We have also considered other facts of your situation.

Your situation falls within scope of what would be considered special circumstances therefore the Commissioner will exercise his discretion under paragraph 124-75(3)(b) to allow an extension of time until 30 June 20YY for you to incur some of the expenditure to acquire a replacement CGT asset.