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Edited version of private advice
Authorisation Number: 1052064555060
Date of advice: 29 November 2022
Ruling
Subject: CGT - asset compulsorily acquired
Question
Will the Commissioner exercise the discretion in subsection 124-75(3) of the IITAA 1997 and allow an extension of time to 30 June 20XX to acquire a replacement asset(s) until the dispute over the amount of compensation is resolved?
Answer
Yes. It is accepted that the lack of certainty as to the amount and timing of the compensation to be received has delayed your ability to search for and acquire an appropriate replacement asset. The Commissioner will exercise the discretion and allow an extension of time to acquire a replacement asset(s).
Question
Will the property (the replacement asset) satisfy the same or similar purpose test in subsection 124-75(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes. The original property was used as a passive investment and capital growth asset by leasing various parts of the property to third parties. The replacement asset will be used as a passive investment leased to commercial tenants. The replacement asset will be used for the same purpose as, or for a similar purpose to, the purpose for which you used the original asset just before it was compulsorily acquired.
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commenced 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.
You were the registered proprietor of a one quarter interest in a property (original property).
You used the property as a passive growth asset by leasing various parts of the property to third parties.
The Secretary to the Department of Transport (Authority) compulsorily acquired the original property.
An offer of compensation was made by the Authority for the acquired land.
You are currently seeking expert and legal advice in relation to the quantum of the compensation payment and are yet to lodge a claim for compensation pursuant to the Land Acquisition and Compensation Act 1986.
You entered a contract to purchase a replacement property for an amount less than the compensation received for the acquired land.
The replacement property will be used as a passive investment leased to commercial tenants.
At present, the cost of the replacement property does not exceed 120% of the market value of the original property when the event happened and, subject to the amount of compensation agreed or awarded for market value, may not even exceed the compensation received for compulsory acquisition of the original property.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 124-75(3)
Income Tax Assessment Act 1997 section 124-75(4)