Edited version of private advice

Authorisation Number: 1052225930390

Date of advice: 1 March 2024

Ruling

Subject: CGT - small business roll-over

Question

Will the Commissioner exercise the discretion in subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period to acquire a replacement asset by 12 months?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

23 March 20XX

Relevant facts and circumstances

You own several sections of farmland. Two lots (Lot 1 and Lot 2) are isolated and separate from the rest of your land.

Your relative owns farmland adjacent to some of the sections that you own. You planned to sell Lots 1 and 2, and purchase 2 lots from your relative which border your other sections. This would leave you with a tidy, efficient block of farmland.

On 23 March 20XX, you sold Lot 1 to prepare for the purchase from your relative. Your relative planned to sell their lots to you in 20XX.

Lot 1 was an active asset, and you lodged your 20XX income tax return on the basis that a replacement asset would be purchased within 2 years.

The purchase of your relative's land has been delayed and the acquisition will fall outside of the replacement period. The reason for the delay is that your relative has been conducting maintenance works on the fencing and sheep yards in preparation for the sale. Your relative has therefore decided to sell their lots in the Spring of 20XX.

You still intend to go through with the transaction and plan to sell Lot 2 this year to enable the purchase from your relative.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 subsection 104-190(1A)

Income Tax Assessment Act 1997 subsection 104-190(2)

Reasons for decision

The sale of each lot is a separate CGT event. For the purposes of this ruling, Lot 2 will be ignored as a CGT event has not yet occurred for this asset.

Subsection 104-190(1A) of the ITAA 1997 sets out the replacement asset period for small business roll-overs in compliance with Subdivision 152-E of the ITAA 1997. The replacement asset period starts one year before the CGT event for which you obtain the roll-over and ends 2 years after the last CGT event.

You sold Lot 1 on 23 March 20XX. The replacement asset period therefore commenced on 23 March 20XX and ends on 23 March 20XX.

Subsection 104-190(2) of the ITAA 1997 provides that the Commissioner has discretion to extend the replacement asset period.

ATO Interpretative Decision 2001/619 (Withdrawn) outlines the factors that the Commissioner considers when determining whether discretion would be exercised. The decision was withdrawn for 'being a simple restatement of the law' but is still illustrative.

The factors which the Commissioner considers in exercising this discretion are:

•         whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to grant the extension;

•         whether it would be prejudicial to the Commissioner as a result of granting further time. The absence of prejudice is not enough to justify the granting of the extension;

•         whether the decision will unsettle people other than the Commissioner or unsettle established practices;

•         whether it is fair to people in similar positions and the wider public interest;

•         whether there is any mischief involved; and

•         the consequences of granting the extension.

You have provided an acceptable explanation for the extension requested and it is fair and equitable in the circumstances to grant the extension. The delays in acquiring the replacement asset were through no fault of your own, and the replacement asset will be acquired a short time outside of the replacement period under subsection 104-190(1A) of the ITAA 1997. There appears to be no mischief involved and no ill consequences resulting from the extension being granted.

Having considered these factors and your circumstances, the Commissioner will exercise the discretion in subsection 104-190(2) of the ITAA 1997 to extend the replacement asset period to 23 March 20XX.

Note that the Commissioner has not considered your eligibility for the small business roll-over in this ruling. You must satisfy the relevant requirements and conditions to claim this concession.