Edited version of private advice

Authorisation Number: 1052176126951

Date of advice: 4 October 2023

Ruling

Subject: CGT replacement assets - extension of time

Question 1

Does the sale of the XXX Property meet the conditions contained in paragraph 124-70(1)(c) of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Answer

Yes.

Question 2

Will the Commissioner exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997to allow an extension of time of xx months (to DD MM YYYY) for the taxpayer to incur at least some expenditure on a replacement asset (or assets)?

Answer

Yes.

Question 3

Will the intended acquisition of investment properties satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997?

Answer

Yes.

Question 4

Will the intended acquisition of units in a listed or unlisted property trust satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997?

Answer

Yes.

Question 5

Will the intended acquisition of listed company shares and interests in managed funds satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

DD MM YYYY to DD MM YYYY

The Scheme commences on:

DD MM YYYY

RELEVANT FACTS AND CIRCUMSTANCES

Background Information

1.      The Taxpayer and her spouse purchased the property at XXX ('the XXX Property') as joint tenants on DD MM YYYY for $xyz.

2.      The XXX Property was acquired as a long-term investment.

3.      The XXX Property was xx hectares in size.

4.      The Taxpayer is an Australian resident for tax purposes and her spouse was an Australian resident at all relevant times.

5.      Between the purchase date and MM YYYY, the XXX Property was vacant due to the lack of a dwelling on the land, electricity, water and road infrastructure in the area.

6.      The XXX Property was held on capital account and was never used for the purpose of producing assessable income.

7.      On or around DD MM YYYY, the Taxpayer and her spouse entered into a building contract to construct a dwelling on the XXX Property.

8.      The Taxpayer and her spouse moved into the XXX Property in or around MM YYYY and established it as their main residence for income tax purposes.

9.      On DD MM YYYY, the Taxpayer's spouse passed away. Pursuant to the rule of survivorship, the spouse's share in the XXX Property automatically passed to the Taxpayer.

Council Correspondence

10.   On DD MM YYYY, the YYY Council sent the Taxpayer a letter containing three attachments relating to the XXX Property, being a:

•           Notice of the preparation of an amendment to the YYY Planning Scheme

•           Proposed planning map outlining the proposed public acquisition overlay; and

•           Explanatory report about the proposed amendment.

11.   The Taxpayer's lawyer provided her with a flowchart explaining the process of compulsory acquisition.

12.   The YYY Council sent a letter to the Taxpayer on DD MM YYYY referring to recent discussions and outlining their intention to acquire the XXX Property. The letter stated:

"... Council proposes to permanently acquire the whole of the above property ("the Required Land") to facilitate this development. Council's preference is to acquire the Required Land via a negotiated purchase rather than compulsory acquisition."

13.   The YYY Council's letter invited the Taxpayer to negotiate with them, with a view to the YYY Council acquiring the XXX Property by agreement. The letter presented compulsory acquisition as an alternative if the negotiated purchase did not proceed.

Negotiated Sale Process

14.   The Taxpayer chose the negotiated sale process as it was deemed less arduous, but it was also conditional on the success of the negotiations. If the negotiations were not successful, then the XXX Property would have been compulsorily acquired by the YYY Council.

15.   After discussions and meetings with the YYY Council, on DD MM YYYY, the Taxpayer entered into a Negotiated Sale Process Agreement with the YYY Council. At clause 7(d) the agreement said:

"(d) If the Sale Process is ended then:

...

(2) the parties expressly agree that Council will remain entitled, at its complete discretion, and at any time, to take any steps it sees fit, with a view to compulsory acquisition of the Land or any part of it under the P&E Act and/or the LAC Act, and if it chooses to, to proceed with compulsory acquisition of the Land, or part of it, under the P&E Act and/or LAC Act (Compulsory Acquisition Process)."

16.   The Taxpayer disposed of the XXX Property by contract on DD MM YYYY for consideration of $xyz.

17.   Pursuant to the contract of sale, settlement was scheduled to occur on DD MM YYYY. The parties agreed to bring forward settlement of the XXX Property to DD MM YYYY in exchange for reducing the purchase price of the XXX Property by $xx.

CGT Main Residence Exemption

18.   As the XXX Property was xx hectares in size, the Taxpayer was able to apply the CGT main residence exemption as provided in Subdivision 118-B of the Income Tax Assessment Act 1997 ('ITAA 1997') to partially exempt the capital gain from the sale of the XXX Property.

19.   The partial CGT exemption was limited to two hectares of land, being the land immediately under the dwelling, as well as up to two adjoining hectares. The land on the XXX Property not eligible for the CGT main residence exemption as provided in Subdivision 118-B is referred to as the 'non-MRE land' and was never used to produce income. This is the relevant asset for which the Taxpayer is seeking to incur replacement expenditure.

20.   The YYY Council has a power of compulsory acquisition, being subsection 112(1) of the Local Government Act 2020 (Vic).

21.   The Taxpayer intends to acquire replacement assets, being one or all of the following:

•           Investment properties;

•           Portfolio investments in listed property unit trusts (ie. less than a 10% voting interest); and

•           Portfolio investments in listed shares and managed funds (ie. less than a 10% voting interest).

22.   It is intended that the Taxpayer would hold any of the above replacement assets on capital account as long-term investment.

Information provided

23.   You have provided a number of documents containing detailed information in relation to the Taxpayer, including:

•           Private Binding Ruling ('PBR') Application, dated DD MM YYYY

24.   We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

Assumption(s)

Not applicable.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 Paragraph 124-70(1)(c)

Income Tax Assessment Act 1997 Subsection 124-70(1A)

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

Income Tax Assessment Act 1997 Subsection 124-75(4)

Further issues for you to consider

Not applicable.

REASONS FOR DECISION

All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated.

SUMMARY

Question 1:

The sale of the XXX Property meets the conditions contained in paragraph 124-70(1)(c) of the Income Tax Assessment Act 1997.

Question 2:

The Commissioner will exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997to allow an extension of time of xx months (to DD MM YYYY) for the Taxpayer to incur at least some expenditure on a replacement asset (or assets).

Question 3:

The intended acquisition of investment properties will satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997.

Question 4:

The intended acquisition of units in a listed or unlisted property trust held for long term investment will satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997.

Question 5:

The intended acquisition of listed company shares and interests in managed funds held for long term investment will satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997.

DETAILED REASONING

25.   Roll-over relief for the compulsory acquisition of a CGT asset is available where the conditions outlined in Subdivision 124-B of the ITAA 1997 are met.

26.   Under subsection 124-70(1) of the ITAA 1997, an entity may be able to choose a replacement asset rollover if a CGT asset owned by the entity is compulsorily acquired by an Australian government agency as per paragraph 124-70(1)(a) of the ITAA 1997.

27.   A replacement-asset rollover allows you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens.

28.   Subsection 995-1(1) of the ITAA 1997 defines an Australian government agency as a Commonwealth, a State or a Territory, or an authority of Commonwealth or of a State or Territory.

29.   Subdivision 124-B- of the ITAA 1997 deals with assets compulsorily acquired, lost or destroyed. Specifically, section 124-70 of the ITAA 1997 outlines the events giving rise to a CGT roll-over, as follows:

(1) You may be able to choose a roll-over if one of these events happens to a CGT asset (the original asset) you own:

(a) it is compulsorily acquired by an Australian government agency;

(aa) it is compulsorily acquired by an entity (other than an Australian government agency or a foreign government agency) under a power of compulsory acquisition conferred by a law covered under subsection (1A);

(b) it, or part of it, is lost or destroyed;

(c) you dispose of it to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:

(i) the disposal takes place after a notice was served on you by or on behalf of the entity;

(ii) the notice invited you to negotiate with the entity with a view to the entity acquiring the asset by agreement;

(iii) the notice informed you that if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity;

(iv) the compulsory acquisition would have been under a power of compulsory acquisition conferred by a law covered under subsection (1A);

(ca) you dispose of it to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:

(i)      the asset is land over which a mining lease was compulsorily granted;

(ii)     the lease significantly affected your use of the land;

(iii)   the lease was in force just before the disposal;

(iv)   the entity to which you dispose of the land was the lessee under the lease;

(cb) you dispose of it to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:

(i)      the asset is land over which a mining lease would have been compulsorily granted if you had not disposed of it;

(ii)     that lease would have significantly affected your use of the land;

(iii) the entity to which you dispose of the land would have been the lessee under the lease.

(d) if it is a lease granted to you by an Australian government agency under an Australian law--the lease expires and is not renewed.

Note 1: There are no roll-over consequences if you make a capital loss from the event.

Note 2: Section 103- 25 tells you when you have to make the choice.

(1A) A law is covered under this subsection if it is:

(a) an Australian law (other than Chapter 6A of the Corporations Act 2001); or

(b) a foreign law (other than a foreign law corresponding to Chapter 6A of the Corporations Act 2001).

(2) You must receive money or another CGT asset (except a car, motorcycle or similar vehicle), or both:

(a) as compensation for the event happening; or

(b) under an insurance policy against the risk of loss or destruction of the original asset.

Note: There are other requirements that must be satisfied if:

•        you receive money: see section 124-75; or

•        you receive another CGT asset: see section 124-80.

(3) The requirement in subsection (4) must be satisfied if:

(a) you are a foreign resident just before the event happens; or

(b) you are the trustee of a trust that is a * foreign trust for CGT purposes for the income year in which the event happens.

(4) The original asset must be taxable Australian property just before the event happens. The other asset must be taxable Australian property just after you acquire it.

30.   A further requirement is that the owner of the original asset must receive money or another CGT asset or both, for the CGT event to be eligible for a rollover (subsection 124-70(2) of the ITAA 1997). On satisfying these conditions, section 124-75 of the ITAA 1997 provides other requirements which must be satisfied if money is received for the event happening.

31.   Subsection 124-75(2) of the ITAA 1997 requires that the owner of the asset must incur expenditure in acquiring another CGT asset.

32.   Paragraph 124-75(3)(b) of the ITAA 1997 requires you to incur expenditure in acquiring a replacement CGT asset no later than one year after the CGT event, or within such further time as the Commissioner allows in special circumstances.

33.   Subsection 124-75(4) of the ITAA 1997 requires that the replacement asset acquired must be used for the same or similar purpose as the taxpayer used the original asset. This replacement asset cannot become an item of trading stock just after the acquisition or be a depreciating asset (subsection 124-75(5) of ITAA 1997), nor become a "registered emissions unit" just after the acquisition (subsection 124-75(6) of ITAA 1997).

34.   In determining whether special circumstances exist for the Commissioner to extend the period in which to acquire a replacement asset, Taxation Determination TD 2000/40 "Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the ITAA 1997?" ('TD 2000/40') provides guidance on interpreting subsection 124-75(3) of the ITAA 1997, in particular, what are 'special circumstances'.

35.   TD 2000/40 states that the expression 'special circumstances' by its nature is incapable of a precise or exhaustive definition. What constitutes 'special circumstances' depends on the facts of each particular case.

36.   In determining whether the discretion will be exercised, the Commissioner also considers the following factors:

•         there should be evidence of an acceptable explanation for the period of the extension requested and that it would be fair and equitable in the circumstances to provide such an extension;

•         account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension;

•         account must be had of any unsettling of people, other than the Commissioner, or of established practices;

•         there must be a consideration of fairness to people in like positions and the wider public interest;

•         whether there is any mischief involved; and a consideration of the consequences.

37.   Section 125-75 of the ITAA 1997 outlines the other requirements if you receive money for the CGT event happening, as follows:

(1)    If you receive money for the event happening, you can choose to obtain a roll-over only if these other requirements are satisfied.

Note: The roll-over consequences are set out in section 124- 85.

(2) You must:

(a) incur expenditure in acquiring another CGT asset (except a depreciating asset whose decline in value is worked out under Division 40 or deductions for which are calculated under Division 328); or

(b) if part of the original asset is lost or destroyed--incur expenditure of a capital nature in repairing or restoring it.

(3) At least some of the expenditure must be incurred:

(a) no earlier than one year, or within such further time as the Commissioner allows in special circumstances, before the event happens; or

(b) no later than one year, or within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens.

Special rules if you acquire another asset

(4) If just before the event happened 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.

Otherwise, you must use the other asset (for a reasonable time after you acquired it) for the same purpose as, or for a similar purpose to, the purpose for which you used the original asset just before the event happened.

(5) The other asset cannot become an item of your trading stock just after you acquire it, nor can it be a depreciating asset whose decline in value is worked out under Division 40 or deductions for which are calculated under Division 328.

(6) The other asset cannot become a registered emissions unit held by you just after you acquire it.

38.   Subsection 124-75(4) of the ITAA 1997 therefore requires taxpayers to use the replacement asset (for a reasonable time after it is acquired) for the same purpose as, or for a similar purpose to, the purpose for which taxpayers used the original asset just before the event under paragraph 124-70(1) happened.

39.   The Commissioner has previously considered the application of this rule in Taxation Determination TD 2000/42 "Income tax: what is the scope of the words 'use the other asset ... for the same purpose ... or for a similar purpose' in subsection 124-75(4) of the Income Tax Assessment Act 1997 in relation to a replacement asset?" ('TD 2000/42'). Specifically, TD 2000/42 states that whether an asset is used for the same or similar purpose as another asset is a question of fact and degree.

40.   TD 2000/42 illustrates that there is no requirement for the replacement asset to be a similar asset, it must merely be used for the same or a similar purpose. At Example 3:

Marina owns a house near the sea which she has always rented out. The house has, for capital gains purposes, been treated as an asset separate from the land on which it is situated - the land having been acquired in 1980 - because of the operation of Subdivision 108-D. The house is destroyed by a cyclone and she has the choice of either:

(a) acquiring a city unit for rental purposes; or

(b) rebuilding the house to use as her main residence.

For the purposes of Subdivision 124-B, the use of the city unit will fall within the scope of the same or similar purpose test. The use of the new building as a main residence will not. (emphasis added)

41.   Based on the above example, the 'same' or 'similar' purpose test should be satisfied where one income producing asset held on capital account is compulsorily acquired, and another income producing asset that is also held on capital account is acquired as the replacement.

42.   In contrast, the similar purpose test would not appear to be satisfied where an income producing asset was compulsorily acquired, but the taxpayer acquired an asset which became their main residence. The distinction is that in the first example, both assets would be subject to income tax upon disposal, whereas in the second example, where the replacement asset is a main residence, the subsequent sale should be tax-free (due to the CGT main residence exemption).

43.   The overall object of the requirement in subsection 124-75(4) is to ensure that taxpayers cannot reduce or eliminate income tax by acquiring a replacement asset that is subject to different taxing outcome in the event of a subsequent sale.

Purpose of the investment property is similar to the non-main residence exemption ('non-MRE') land

44.   An investment property is considered to be used for the "same" or "similar" purpose to the non-MRE land as:

•         Both are investments in property on capital account;

•         There is the prospect of capital growth;

•         Both assets are taxed similarly on disposal;

•         The risks of each asset are similar in that prices of the property can fluctuate;

•         Both assets have ongoing costs; and

•         Both assets have costs to enter and exit the investment.

45.   The investment properties may derive passive income (ie. rent) and that this is different to the non-MRE land immediately before the event as the non-MRE land was not rented.

46.   If an investment property is purchased that derives passive income (ie. rent) then that property would still be used for a similar purpose as the non-MRE land as it is an investment in land that is subject to CGT upon disposal.

47.   It should not matter what type of investment property the property is (ie. private or commercial rental or vacant land) as it would be used for the 'same' or 'similar' purpose to the non-MRE land in any event.

Number of replacement assets

48.   Taxation Determination TD 2000/41 "Income tax: capital gains: are the two requirements in subsection 124-75(4) of the Income Tax Assessment Act 1997 for a CGT asset acquired to replace an original asset alternative and mutually exclusive requirements?" ('TD 2000/41') states at Note 2:

There is no restriction on the number of CGT assets which may be treated as replacement assets for an original CGT asset in the replacement-asset roll-over provisions in Subdivision 124-B provided that they each satisfy the relevant requirements of that Subdivision.

Purpose of the property unit trusts is similar to the non-MRE land

49.   An investment in a listed or unlisted property unit trust is considered to be used for the "same" or "similar" purpose to the non-MRE land as:

•         Both are investments in the property market on capital account;

•         There is the prospect of capital growth;

•         Both assets are taxed similarly on disposal;

•         The risks of each asset are similar in that prices of the units can fluctuate; and

•         Both assets have costs to enter and exit the investment (ie. brokerage costs for the purchase and disposal of the listed property unit trusts).

Purpose of the listed company shares or managed funds are similar to the non-MRE land

50.   An investment in a listed company or a managed fund is considered to be used for the "same" or "similar" purpose to the non-MRE land as:

•           Both are investments in assets on capital account;

•           There is the prospect of capital growth;

•           Both assets are taxed similarly on disposal;

•           The risks of each asset are similar in that prices of the shares can fluctuate; and

•           Both assets have costs to enter and exit the investment (ie. brokerage costs for the purchase and disposal of the listed company shares or managed funds).

APPLICATION TO YOUR CIRCUMSTANCES

Question 1:

51.   Section 124-70 of the ITAA 1997 describes different circumstances where a CGT roll-over under Subdivision 124-B of the ITAA 1997 is available to an entity if that event happens to the CGT asset of that entity.

52.   Relevantly, paragraph 124-70(1)(c) of the ITAA 1997 provides that a CGT rollover is available for an asset where:

(c) you dispose of it to an entity (other than a foreign government agency) in circumstances meeting all of these conditions:

(i) the disposal takes place after a notice was served on you by or on behalf of the entity;

(ii) the notice invited you to negotiate with the entity with a view to the entity acquiring the asset by agreement;

(iii) the notice informed you that if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity;

(iv) the compulsory acquisition would have been under a power of compulsory acquisition conferred by a law covered under subsection (1A);

53.   Subsection 124-70(1A states:

(1A) A law is covered under this subsection if it is:

(a) an Australian law (other than Chapter 6A of the Corporations Act 2001); or

(b) a foreign law (other than a foreign law corresponding to Chapter 6A of the Corporations Act 2001).

54.   Looking at the requirements of paragraph 124-70(1)(c) with regards to the Taxpayer's circumstances,

•         The Taxpayer disposed of the XXX Property after the Notice was served on them;

•         The Notice invited the Taxpayer to negotiate with the YYY Council with a view to the YYY Council acquiring the XXX Property by agreement;

•         The Notice, together with other documentation, informed the Taxpayer that that if the negotiations were unsuccessful, the XXX Property would be compulsorily acquired by the entity; and

•         The compulsory acquisition (if it had been necessary) would have been under the YYY Council's power of compulsory acquisition conferred on them by subsection 112(1) of the Local Government Act 2020 (Vic).

55.   Consequently, the disposal of the XXX Property satisfies all of the requirements in paragraph 124-70(1)(c) of the ITAA 1997.

Question 2:

56.   Where monetary compensation is received for the acquisition of the CGT asset, section 124-75 of the ITAA 1997 outlines further requirements that must be satisfied in order to be able to choose the roll-over.

57.   Subsection 124-75(3) of the ITAA 1997 states that at least some of the expenditure to replace the compulsorily acquired asset has been incurred no earlier than one year before the event and no later than one year after the end of the financial year in which the event occurred, unless such further time is allowed by the Commissioner in special circumstances.

58.   As the Taxpayer entered into a contract of sale to dispose of the XXX Property on DD MM YYYY, the requirements in subsection 124-75(3) of the ITAA 1997 require that at least some expenditure on an eligible replacement asset is to occur prior to DD MM YYYY

59.   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') sets out the Commissioner's view on special circumstances for the purpose of extending the replacement CGT asset roll-over period in subdivision 124-B of the ITAA 1997.

60.   Paragraph 3 TD 2000/40 states that:

What are 'special circumstances' depends on the facts of each particular case. Application of the expression is best illustrated by examples.

61.   TD 2000/40 provides that the expression 'special circumstances', by its nature, is incapable of a precise and exhaustive definition, and that what constitutes 'special circumstances' depends on the facts of each particular case.

62.   This application seeks that the Commissioner should exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997 to extend the time to find a replacement asset (or assets) for a further year to DD MM YYYY as:

•         The CGT event happened in the YYYY income year when the contract was signed, meaning that the statutory time limit to incur expenditure ended on DD MM YYYY, unless an extension of time is granted.

•         The terms of the sale contract included a significantly deferred settlement period, meaning that the final amount of proceeds was not received until MM YYYY, notwithstanding that a sale contract was entered into some xx months earlier, in MM YYYY. The practical consequence of this deferred settlement meant that the Taxpayer was unable to incur sufficient expenditure before at least late MM YYYY, and therefore had less than x months to begin incurring expenditure on acquiring replacement assets.

•         As outlined above, the sale proceeds for the sale of the XXX Property were $xyz. Given the significant amount of expenditure required to be incurred on replacement assets, just over x months did not give the Taxpayer sufficient time to find suitable replacement assets and carry out any necessary due diligence on those replacement assets.

•         There is nothing that would indicate that the Commissioner would suffer any material prejudice as a result of granting the extension.

•         There is no identifiable mischief in relation to the acquisition outside of the statutory timeframe.

•         The Commissioner has previously allowed taxpayers additional time to incur expenditure on acquiring replacement assets that have been compulsorily acquired (or otherwise subject to Subdivision 124-B of the ITAA 1997), where the asset in question was both subject to a contract with deferred settlement terms (or otherwise not promptly received), and where the capital proceeds received were significant.

63.   For these reasons, it is considered fair and reasonable in the circumstances for the Commissioner to allow additional time for the Taxpayer to commence incurring expenditure on acquiring replacement assets. Also, by granting this extension of time to acquire replacement asset:

•         there does not appear to be any prejudice to the Commissioner or any other parties;

•         there is no unsettling of people or of established practices;

•         there does not appear to be any mischief involved in this case; and

•         the Commissioner considers it to be fair to people in like positions and the wider public interest.

64.   Therefore, the Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow an extension of time to obtain a replacement asset for landholdings that were compulsorily acquired until DD MM YYYY.

Question 3:

65.   Subsection 124-75(4) of the ITAA 1997 requires taxpayers to use the replacement asset (for a reasonable time after it was acquired) for the same purpose as, or for a similar purpose to, the purpose for which taxpayers used the original asset just before the CGT event under paragraph 124-70(1) of the ITAA 1997 happened.

66.   Just before DD MM YYYY (when the contract of disposal was signed), the Taxpayer was using the XXX Property as a main residence.

67.   The non-MRE land (being the land that was not eligible for the main residence exemption and the subject of this ruling request) was being used by the Taxpayer as vacant land that was able to appreciate in value.

68.   The fact that the XXX Property (which contains the non-MRE land) was acquired in YYY for $xyz, and was sold in MM YYYY for $xyzxyz shows the extent of the capital appreciation in respect of the asset. The non-MRE land had holding costs associated with it (ie. council rates and ongoing maintenance costs) and was subject to capital gains tax in its entirety.

69.   The Taxpayer intends to acquire multiple different assets, potentially including investment properties, provided that each of the replacement assets satisfies the same or similar purpose test in subsection 124-75(4) of the ITAA1997.

Question 4:

70.   A property unit trust may pay trust distributions to the Taxpayer as a unitholder and, if this occurs, then this is different to the non-MRE land immediately before the event as the non-MRE land was not rented. However, whether or not a particular investment in a property unit trust paid a distribution would be subject to a number of factors, including the investment stage of the asset and the level of gearing.

71.   For example, if a property unit trust was established for the purpose of acquiring and developing a large commercial building, the trust may have significant expenditure on leasehold incentives and interest expenses, such that it may be in a taxable loss position for a number of income years.

72.   If the listed or unlisted property unit trust pays such distributions to the Taxpayer, then provided that investment in a property unit trust is held for long term investment it would still be used for a similar purpose as the non-MRE land as the investment in the property unit trust is an investment in an asset that can fluctuate in value, whose assets are predominantly in land and is subject to CGT upon disposal.

Question 5:

73.   A listed company share or a managed fund may pay dividends or distributions to the Taxpayer and, if this occurs, then this is different to the non-MRE land immediately before the event as the non-MRE land was not rented. However, whether or not a particular company or managed fund paid a distribution would be subject to a number of factors, including the investment stage of the company, its level of gearing and its distribution policy.

74.   For example, many listed companies (including mining companies and technology start-ups) do not pay dividends, and retain all surplus cash for working capital and future growth.

75.   If the listed company or the managed fund pays such a dividend to the Taxpayer, then provided that listed share is held for long term investment it would still be used for a similar purpose as the non-MRE land as the investment in the listed share is an asset that can fluctuate in value that is subject to CGT upon disposal.

CONCLUSION

Question 1:

The sale of the XXX Property meets the conditions contained in paragraph 124-70(1)(c) of the Income Tax Assessment Act 1997.

Question 2:

The Commissioner will exercise his discretion under paragraph 124-75(3)(b) of the ITAA 1997to allow an extension of time of xx months (to DD MM YYYY) for the taxpayer to incur at least some expenditure on a replacement asset (or assets).

Question 3:

The intended acquisition of investment properties will satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997.

Question 4:

The intended acquisition of units in a listed or unlisted property trust held for long term investment will satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997.

Question 5:

The intended acquisition of listed company shares and interests in managed funds held for long term investment will satisfy the "same" or "similar" purpose test for the purposes of subsection 124-75(4) of the ITAA 1997.