Edited version of private advice

Authorisation Number: 1052101829463

Date of advice: 28 March 2023

Ruling

Subject: Commissioner's discretion - replacement asset

Question

Will the Commissioner exercise his discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow until 30 June 20XX for expenditure to be incurred in relation to acquiring a replacement asset?

Answer

Yes.

The Commissioner will exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow you until 30 June 20XX to incur expenditure to acquire an asset to replace the destroyed house in accordance with the guidance provided in Taxation Determination TD 2000/40.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 2020

Relevant facts and circumstances

You own a rental property (the Property).

A fire occurred in the house located on the Property.

The Property is insured, and you lodged an insurance claim.

The insurer assessed the house as being a write off and agreed to settle your insurance claim with a cash settlement.

You received the cash settlement amount shortly after the insurer had assessed the Property.

You are going to use the cash settlement amount to acquire a replacement asset.

You sold the land on which the destroyed property was located during the 20XX-XX financial year, and the sale proceeds were mainly used to clear debt owing against the original property, and there was a small surplus amount left over.

In early 20XX the Commissioner of Taxation exercised his discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 to allow until 30 June 20XX to incur expenditure to acquire an asset to replace the destroyed house.

Since that time, your focus has changed to purchasing an existing rental property rather than building a new property, and the reasons for this was due to rising building costs and general uncertainty regarding building quotes (with some builders no longer offering fixed price building contracts).

In the last 12 months you have also been continually monitoring the property market and have submitted multiple offers over the past twelve months. On each occasion, you have been outbid and, in some instances, the final sale price has exceeded the asking price by a considerable amount.

Approximately 12 months after the Commissioner of Taxation exercised the discretion you signed a contract to purchase a replacement asset, which subsequently had to be terminated due to termite damage.

You have found the process of searching for a new property extremely frustrating and stressful, and you are hoping to secure a replacement property as soon as possible, however given the tough market conditions you are now seeking further time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Paragraph 124-75(3)(b)