Edited version of private advice

Authorisation Number: 1052184459781

Date of advice: 25 October 2023

Ruling

Subject: Commissioner's discretion - 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 an extension of time until 30 June 20XX for you to incur expenditure in acquiring a replacement CGT asset regarding the compulsorily acquired property that meets the conditions to claim roll-over under Subdivision 124-B of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

Income year ending 30 June 20XX.

Income year ending 30 June 20XX.

The scheme commenced on:

1 July 20XX.

Relevant facts and circumstances

You own a Property.

You are resident of Australian for income tax purposes.

You have provided a timeline of the following facts surrounding your circumstances that is delaying the acquisition of a replacement asset.

•         a State Government Authority in Australia (the Authority) compulsorily acquired your Property under their Legislative Authority. They provided you with an invitation to make a claim for compensation.

•         you submitted your claim for compensation to the Authority.

•         you were offered with a formal Compensation amount.

•         you rejected the offer of compensation based on the substantial discrepancy between your submission of compensation and the formal offer by the Authority.

•         negotiations were carried on for months between you and the Authority as the terms were not satisfactory.

•         no amicable terms were reached during the negotiation.

•         you commenced your own application to the Supreme Court.

•         the Authority provided an amended offer of compensation.

•         you formally rejected the updated offer of the Authority.

•         you continued to search for a suitable replacement asset but were unsuccessful in your search.

•         the legal representative f the Authority wrote to you providing 30 days' notice of intention to commence proceedings in the State Administrative Tribunal.

•         your solicitors responded, indicating that you prefer that the resolution of the compensation claim should proceed in the Supreme Court.

•         you officially commenced legal proceedings and a formal Writ of Summons filed in the Supreme Court to lodge your Statement of Claim.

•         Mediation was unsuccessful.

•         continued discovery of documents between you and the Authority took place for several months. Further, your legal representative has issued subpoenas to the Authority for supply of further information which is currently being managed by the Courts.

•         to date you are waiting for the Registrar in the Court to make a decision on the hearing in the Court.

Relevant legislative provisions

Income Tax Assessment Act 1997subsection 104-10(6)

Income Tax Assessment Act 1997section 124-70

Income Tax Assessment Act 1997section 124-75

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

Income Tax Assessment Act 1997subsection 995(1)

Reasons for decision

Summary

The Commissioner will exercise his discretion under paragraph 124-75(3)(b) to allow an extension of time until 30 June 2025 for you to incur expenditure in acquiring a replacement CGT asset that meets the conditions to claim roll-over under Subdivision 124-B.

Detailed reasoning

Subsection 124-70(1) states, an entity can choose a roll-over if the CGT asset that the entity owns is compulsorily acquired by an Australian government agency.

Subsection 124-70(2) states that to be eligible for a roll-over, the entity 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.

The Property was compulsorily acquired by, an authority of a State, and the Owners received money as compensation for the CGT event A1 happening.

You were an Australian tax resident just before the compulsory acquisition, therefore subsection 124-70(3) does not apply.

You can choose a roll-over in relation to the capital gain, provided other requirements as stated in section 124-75 are met.

Subsection 124-75(1) states:

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

Subsection 124-75(2) states:

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.

Subsection 124-75(3) states:

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.

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.

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.

In your case:

•         the Authority compulsorily acquired the Property.

•         you received compensation payments from the compulsory acquisition.

•         you disputed the compensation amount.

•         you sought legal advice and submitted your claim for compensation.

•         you officially commenced legal proceedings and a formal writ of Summons was filed in the Supreme Court.

•         the dispute is still ongoing with your legal representative issuing subpoenas to the Authority.

•         the compensation amount is still in dispute.

You did not acquire a replacement asset prior to the disposal of the Property therefore to satisfy subsection 124-75(3), you must incur at least some of the expenditure in acquiring another CGT asset no later than 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)).

There are no legislative provisions which provide guidance as to what may constitute special circumstances for the purposes of subsection 124-75(3). The matter depends on the facts of each case.

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 2002/40) 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 tax determination.

Examples 3 of TD 2000/40 are relevant to your circumstances. There were delays caused by the legal dispute with the PTA over the quantum of the compensation and therefore you failed to meet the requirements to acquire the replacement CGT asset.

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 20XX for you to acquire a replacement CGT asset.