Edited version of private advice

Authorisation Number: 1052047188387

Date of advice: 20 October 2022

Ruling

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

Question

Will the Commissioner exercise his discretion in subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow the extension of time until 30 June 20XZ to the you for incurring expenditure to acquire a replacement asset from the proceeds received pursuant to the compulsory acquisition of their asset to meet the eligibility requirements for a Subdivision 124-B of the ITAA 1997 roll-over?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XY

Year ended 30 June 20XZ

The scheme commences on:

20XV

Relevant facts and circumstances

You owned land which was compulsorily acquired by an Australian government agency.

You previously obtained a private ruling authorisation number XXXXXXXXXXXXX in which the Commissioner exercised his discretion to extend the time allowed to acquire a replacement asset to 30 June 20XX.

In that Private Ruling, the Commissioner allowed an extension of time to acquire a replacement asset as you had not yet received an offer of compensation since compulsorily acquiring the property on 30 June 20XV.

Since the time of the private ruling, you have received compensation. The amount received is significantly less than the fair market value of the acquired land based on independent valuation reports and professional advice you have obtained. You have provided the relevant details.

You have attempted to further negotiate in relation to the compensation amount however the Australian government agency has not been willing to correspond further in relation to the matter. As a result, the matter was filed with the relevant court on a date in 20XW.

Due to the large disparity in relation to the contested fair market value of the acquired property, you are unable to accurately anticipate the final compensation amount that will be received. This significantly impedes its ability to acquire a replacement asset.

You have received advice from your legal advisor that due to the number of applications currently being heard by the relevant court, there is a strong likelihood that the matter will not be settled at court for at least XX months.

Relevant legislative provisions

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 in subsection 124-75(3) and allow the extension of time until 30 June 20XZ to you for incurring expenditure to acquire a replacement asset from the proceeds received pursuant to the compulsory acquisition of their asset to meet the eligibility requirements for a Subdivision 124-B of the ITAA 1997 roll-over.

Detailed reasoning

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.

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) 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 in TD 2000/40, including example 3 in paragraph 6:

Graeme had a commercial property compulsorily acquired by a State authority. Graeme is having a protracted legal dispute with the authority over the quantum of the compensation. On these facts, we would accept that there are special circumstances to allow further time.

The Commissioner has already exercised his discretion to extend the time allowed for you to incur that expenditure until 30 June 20XX.

Since that decision, you received compensation which is significantly less than the valuation of the land that you obtained. As you have not been able to negotiate further with the Australian government agency, you have now taken the matter to the relevant court.

Consequently, you are unable to accurately anticipate the final compensation, and this impedes your ability to acquire a replacement asset.

The matter before the relevant court may take up to XX months, which means you may not know the amount of final compensation until a date in 20XY.

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 20XZ for you to incur some of the expenditure to acquire a replacement CGT asset.