Edited version of private advice

Authorisation Number: 1052162225105

Date of advice: 29 August 2023

Ruling

Subject:CGT - extension of time

Question

Will the Commissioner exercise his discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you an extension of time until 30 June 20XZ to obtain a replacement asset for an asset that was compulsorily acquired by a government body?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XW

Year ended 30 June 20XX

Year ended 30 June 20XY

Year ended 30 June 20XZ

The scheme commenced on:

20XV

Relevant facts and circumstances

Your activities include investment in the X hectares of land located at address (the Property).

The Property was only used as farming land held for rental purposes. Exploratory activities were conducted on the land, but this did not lead to any related activities. The Property was not intended to be used for development purposes.

You acquired the Property at the same time as other land described in private ruling authorisation number XXXXXXXXXXXXX (Related private ruling). In the Related private ruling, the Commissioner determined that the other land you and other related entities held was pre-CGT land. The Property was acquired together with that land and has the same background facts.

On DATE 1, a Government entity (the Authority) compulsorily acquired the Property when a Notice of Acquisition (NOA) was gazetted. The NOA followed an earlier Notice of Intention to Acquire.

On DATE 2, the Authority made you an offer of compensation for $X. An advance equal to the value of the initial offer of compensation was paid to you on DATE 3.

Under the terms of the offer, you were given 3 months to either accept or dispute the offer. You provided notice in writing to the Authority to advance the initial offer and then issued a notice of claim. On DATE 4, the Authority took possession of the Property.

The payment of the advance did not affect your right to claim further compensation. At the date of your private ruling application, you had not made a formal response to the offer of compensation pending the outcome of the loss on sale compensation claim outlined in the Related private ruling, to which you are also a claimant (Related compensation claim).

You may claim a greater amount of compensation than that offered by the Authority if you believe the amount offered is insufficient to cover the losses suffered resulting from the acquisition.

You plan to make a claim for additional compensation. You have previously obtained a draft assessment from an expert valuer however instructions in relation to a final assessment (and hence any response to offer) were deferred pending the outcome of the Related compensation claim.

Final orders in the Related compensation claim were made on DATE 5 with any appeal of the decision to be lodged by DATE 6. No appeal was lodged by this date.

Given the common issues involved in respect of the value of the land, the outcome of the Related compensation claim was regarded as being directly relevant to your claim. Senior Counsel in the Related claim had been engaged for the Property claim but is no longer available, and the brief has been sent to replacement Senior Counsel who is representing you in this dispute.

You have obtained information from your legal representatives as to the expected timeframe for settling the dispute of the Claim. You have provided the expected timeline for the relevant steps in the compensation process, assuming that the compensation claim, or any revised offer by the Authority, is rejected.

The timeline is only an estimate based on your legal representatives' present view of matters and does not consider any decision by the Authority to refer the matter without waiting for your response.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 124-75

Reasons for decision

This is to explain how we reached our decision. This is not part of the private ruling.

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 under paragraph 124-75(3)(b) to allow you an extension of time until 30 June 20XZ to incur some of the expenditure to acquire a replacement asset for an asset that was compulsorily acquired by a government body.

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.

The time of the CGT event A1 is determined by subsection 104-10(6):

If the asset was acquired from you by an entity under a power of compulsory acquisition conferred by an Australian law or a foreign law, the time of the event is the earliest of:

(a) when you received compensation from the entity; or

(b) when the entity became the asset ' s owner; or

(c) when the entity entered it under that power; or

(d) when the entity took possession under that power.

The Authority compulsorily acquired the Property on DATE 1 and you received compensation on DATE 3. The time of the event under subsection 104-10(6) is therefore the date the Property was compulsorily acquired.

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 examples 1 and 3:

Amanda and John own a saddle shop. A State authority compulsorily acquires the shop to build a railway shunting yard. Compensation was not received by Amanda and John until one month before they are required by subsection 124-75(3) to replace the shop. Amanda and John are unable to acquire a replacement asset in this time. We would accept in this case that the delay in receiving the compensation constitutes special circumstances warranting an extension of time.

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.

You plan to make a claim for additional compensation, having received a draft assessment from an expert valuer. The claim had been deferred because of the Related compensation claim as you regard the outcome of which as being directly relevant. The Related compensation claim has been finalised as no appeal was lodged by DATE 6.

You have sent the brief to replacement Senior counsel who is representing you in this dispute. Based on the estimated timeframe the outcome of the dispute may not be known until 30 June 20XZ.

Additionally, you must consider subsection124-75(4) when looking for a suitable replacement asset, it provides that:

If just before the event happened to the original asset:

(a)  was used in your business; or

(b)  was installed ready for use in your business; or

(c)   was in the process of being installed ready for use in your business;

the other asset must be used in the business, or be installed ready for use in the business, for a reasonable time after you acquired it.

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 it to incur some of the expenditure to acquire a replacement CGT asset.