Edited version of private advice

Authorisation Number: 1052141428580

Date of advice: 14 July 2023

Ruling

Subject: Commissioner's discretion - replacement asset

Question

Will the Commissioner exercise the discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 97) to allow you an additional 12 months to acquire a replacement CGT asset that meets the conditions to claim roll-over under Subdivision 124-B?

Answer

Yes.

The Commissioner will exercise his discretion under paragraph 124-75(3)(b) to allow an extension of time until 30 June 20YY for you to acquire a replacement CGT asset that meets the conditions to claim roll-over under Subdivision 124-B.

This ruling applies for the following period:

Financial year ending 30 June 20YY

The scheme commenced on:

XX/MM/CCYY

Relevant facts and circumstances

You were the owner of properties situated in a State/Territory in Australia (the properties).

The Notice of Acquisition from an Australian government agency was published in Government Gazette No. XXX on XX/MM/CCYY in relation to the compulsory acquisition of the properties.

Following this, you received a Compensation Notice on XX/MM/CCYY which offered a compensation amount for each of the properties.

You did not agree with the compensation amounts offered and lodged an objection on XX/MM/CCYY in the Court in a State requesting more compensation.

An advance payment of compensation was received by you on XX/MM/CCYY.

After negotiations and legal proceedings, on XX/MM/CCYY, you accepted an offer of a further, final compensation amount and entered an Acceptance of offer of Compensation Deed of Release and Indemnity on XX/MM/CCYY.

You have made a capital gain on the compulsory disposals of the properties.

Since receiving the Notice of Acquisition it has been your intention to replace the properties using the compensation money. You were unable to determine the amount of compensation you would receive until the final settlement in Month, CCYY and as such you were unable to replace the properties until the final amount was known.

You purchased one replacement property on XX/MM/CCYY and are still searching for other replacement properties.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 1997 section 124-75

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Issue

Summary

The Commissioner will exercise his discretion under paragraph 124-75(3)(b) to allow an extension of time until XX/MM/CCYY for you to acquire a replacement CGT asset that meets the conditions to claim roll-over under Subdivision 124-B.

Detailed reasoning

Subsection 124-70(1) states, that you can choose a roll-over if the CGT asset that you own is compulsorily acquired by an Australian government agency. Subsection 124-70(2) states that to be eligible for a roll-over, you must receive money or another CGT asset (except a car, motorcycle, or similar vehicle) or both as compensation for the event happening. Subsection 995-1(1) defines an Australian government agency to mean the Commonwealth, a State or a Territory, or an authority of the Commonwealth or of a State or Territory.

Your properties were compulsorily acquired by an authority of a State/Territory, on XX/MM/CCYY, and you received money as compensation for the CGT event A1 happening.

You can choose a roll-over in relation to the capital gain, provided other requirements as stated in section 124-75 are met. The relevant provision for you is paragraph 124-75(2)(a) whereby you are required to incur expenditure to acquire another CGT asset to obtain the roll-over. 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.

In your case, an authority of a State/Territory compulsorily acquired your properties on XX/MM/CCYY but you did not receive the full amount of proceeds until XX/MM/CCYY.

You could not secure suitable replacement assets within the 12-month period due your objection action requesting more compensation. You could not ascertain the amount of money you could potentially apply towards the replacement assets. The proceeds from the authority of the State/Territory were received on XX/MM/CCYY. You acquired one replacement asset on XX/MM/CCYY, but further assets have not been acquired yet. You remain committed to investing in a replacement property and as such request an extension of time.

You did not acquire a replacement asset prior to the disposal of the properties therefore to satisfy subsection 124-75(3), you must incur at least some of the expenditure in acquiring another CGT asset no later than XX/MM/CCYY, (being one year after the end of the income year in which the event happened), or within such further time as the Commissioner allows in special circumstances (paragraph 124-75(3)(b)).

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 under the Taxation Determination.

Examples 1 and 3 of TD 2000/40 are relevant to your circumstances. There were delays caused by the objection lodged with the Court in a State requesting more compensation. and you failed to meet the requirements to acquire the replacement CGT asset within the 12-month period.

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 XX/MM/CCYY for you to acquire a replacement CGT asset.