Edited version of private advice

Authorisation Number: 1052043556485

Date of advice: 10 October 2022

Ruling

Subject: CGT - replacement asset - extension of time

Question

Will the Commissioner exercise the discretion in subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period to acquire a replacement asset by 12 months?

Answer

Yes.

This ruling applies for the following period:

30 June 20XX

The scheme commences on:

1 July 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.

ABC Pty Ltd, the corporate trustee of a Family Trust, is a discretionary Trust.(the Trust, also referred to as the Taxpayer),

ABC Pty Ltd does not carry on any activities in its own right. Mr X is the sole shareholder and director of ABC Pty Ltd.

The Trust holds passive investments and makes distributions.

XYZ Pty Ltd is held 100% by the Trust. This company is a passive holding company and carries on no activities in its own right. Mr X is a director of the company.

MNO Pty Ltd (the Company) is held 100% by XYZ Pty Ltd and operates a business (the Business).

The Trust held 100% of the shares in the Company and sold its shares in the Company to XYZ Pty Ltd. A capital gain was derived from the event.

The Trust intended to purchase either new business premises, or plant and equipment for the business, as the eligible replacement asset for the remaining capital gain amount.

COVID-19 impacted the Business.

The Trust initiated conversations to acquire replacement assets. Various discussions were held via telephone with the owners. However, the negotiations did not progress due to the price sought by the existing owners.

You have analysed the eligibility for the small business CGT concessions under Division 152 and applied a small business rollover in Subdivision 152-E.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-190

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

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

Income Tax Assessment Act 1997 section 104-197

Income Tax Assessment Act 1997 Subdivision 152-A

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 sections 152-410

Income Tax Assessment Act 1997 section 152-415

Reasons for decision

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997.

Summary

The Commissioner has decided to exercise his discretion under subsection 104-190(2) and extend the replacement asset period.

Detailed reasoning

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.

Under note 1(a) of section 152-410, 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 provided that a replacement asset is acquired by the end of the replacement asset period. CGT event J5 happens if a replacement asset is not acquired by the end of the replacement asset period: pursuant to section 104-197.

Subsection 104-190(1A) states that the replacement asset period is the period starting one year before and ending 2 years after the last CGT event in the income year for which you obtain the roll-over.

Section 104-190 provides that the Commissioner may extend the replacement asset period.

The Commissioner considers the following factors when determining whether to grant an extension to the asset replacement period:

•                     Is there 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?

•                     Is there any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension)?

•                     Will the extension unsettle people, other than the Commissioner, or established practices?

•                     Will the extension be fair to people in like positions and the wider public interest?

•                     Is there mischief involved?

•                     What are the consequences of the decision?

Applying the law to the circumstances

The Commissioner has decided to exercise his discretion under subsection 104-190(2) and extend the replacement asset period for 12 months. This is because:

•                     The taxpayer provided an acceptable explanation for the period of the extension requested. It would be fair and equitable in the circumstances to provide the extension.

•                     The taxpayer committed to acquiring a replacement asset and has identified potential replacement assets. Due to circumstances outside of their control the acquisition of the replacement asset was delayed and will fall outside of the replacement asset period.

•                     Due to the taxpayer's commitment to acquiring a replacement asset and acceptable explanation for the delay in acquiring a replacement asset, the Commissioner is of the view that no mischief has occurred.

•                     There is unlikely any prejudice to the Commissioner if the additional requested time is granted.