Edited version of private advice

Authorisation Number: 1052042220368

Date of advice: 10 October 2022

Ruling

Subject: CGT - replacement asset period - extension

Question

Will the Commissioner use his discretion to extend the replacement asset period pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the Small Business CGT replacement asset rollover relief?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 October 20XX

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You sold properties and made a capital gain on date in 20XU.

You rolled over a capital gain amount of $Y under Subdivision 152-E of the ITAA 1997.

Based on subsection 104-190(1A) of the ITAA 1997, the end date for acquiring replacement assets would have been a date in 20XV.

You have received previous private rulings, in which the Commissioner extended the replacement asset period in accordance with subsection 104-190(2):

You have acquired additional active assets in the period to 30 June 20XX.

Additional capital improvements are underway on the active assets, which will be purchased after the end of the replacement asset period on 30 June 20XX.

You continue to have a dispute in relation to access which has significantly impacted your ability to make improvements to the property and run your business.

The amount of capital gain that remained as of 30 June 20XX is $X.

Relevant legislative provisions

Income Tax Assessment Act 1997, Subdivision 152-E

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

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

Reasons for decision

This is to explain how we reached our decision. This is not part of the private ruling.

All references made in these reasons for decision are to the Income Tax Assessment Act 1997 unless otherwise stated.

Summary

The Commissioner will not use his discretion to extend the replacement asset period pursuant to subsection 104-190(2) in respect of the small business CGT replacement asset rollover relief.

Detailed reasoning

If a taxpayer makes a capital gain from a CGT asset and satisfies all the basic conditions in Subdivision 152-A, the taxpayer may choose small business roll-over in Subdivision 152-E.

There are roll-over conditions that must be satisfied by the end of the replacement period, if the roll-over conditions are not met within the replacement asset period, the gain will become assessable.

One such condition, specified in subsection 104-190(1A), requires a taxpayer to acquire a replacement asset within a period starting one year before, and ending 2 years after the date of disposal of the original asset.

However, subsection 104-190(2) states that the Commissioner may exercise his discretion to extend this time limit.

An extension of time may be granted where there have been special circumstances and an acceptable explanation for the period of extension requested. These can include, but are not limited to medical or financial issues, personal issues, or natural disasters.

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

•          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.

ATO Interpretative Decision ATO ID 2001/619 (Withdrawn) Income Tax Capital gains tax: Small business roll-over: extension of time to acquire replacement asset, was a decision in relation to former subsection 152-420(3), which allowed the Commissioner to extend the time limits under former subsection 152-40(1) to acquire a replacement asset for the small business roll-over.

Although ATO ID 2001/619 was withdrawn on the basis that it was a 'simple restatement of the law and does not contain an interpretative decision', it is still illustrative. In making the decision to allow the extension of time it noted that:

•          the negotiation process, which was the cause for delay, commenced within the relevant period for small business roll-over

•          the replacement assets were acquired a short time outside the relevant period, and

•          the delays were beyond the control of the taxpayer.

You made a capital gain on a date in 20XU.

The end date for acquiring replacement assets was a date in 20XV.

You asked the Commissioner to extend the replacement asset period on more than one occasion, all of which were granted.

In the period up to 30 June 20XX you purchased some replacement assets, but you have not yet expended all the capital gain.

A requirement of the small business rollover concession is that you must acquire a replacement asset and it is expected that you would take action to find a suitable replacement asset in anticipation of the receipt of the proceeds from the sale of the CGT asset.

Where that cannot be achieved within the replacement asset period, there is an expectation that you can demonstrate that you have been actively looking to acquire a replacement asset but were not able to do so, through no fault of your own.

You have not provided evidence of an acceptable explanation for the Commissioner to exercise the discretion.

The Commissioner has extended your replacement asset period previously, which when seen in the light of the original 2 years provided for in subsection 104-190(1A), has been fair and equitable.

The granting of a further extension of time in your circumstances may result in unfairness to people who have applied for an extension and purchased replacement assets within the period granted by the Commissioner.

After considering the relevant factors for determining whether to exercise the Commissioner's discretion and the specific circumstances of this case, we consider that your circumstances do not warrant an extension of time

Therefore, the Commissioner will not exercise the discretion under subsection 104-190(2) to extend the period for acquiring the replacement asset.