Edited version of private advice

Authorisation Number: 1052232122888

Date of advice: 13 March 2024

Ruling

Subject: Extension of replacement asset period

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 to 20XX?

Answer

Yes

This ruling applies for the following period

Income year ending 30 June 20XX

The scheme commences on

20XX

Relevant facts and circumstances

1.    You were the 100% owner of a company. Your spouse is a director of the company and is the person who runs the business, as you own and run a separate business.

2.    In 20XX you sold your shares in the company and made a capital gain.

3.    You subsequently sold your main residence and purchased a new main residence interstate. It took several months for you and your family to move and settle into life in your new residence.

4.    In 20XX, your spouse became unwell and travelled interstate for tests and to prepare for surgery later in the year.

5.    You spent the next several months looking at replacement assets, with the search hindered due to concerns over COVID-19 impacting your spouse's health.

6.    Your spouse underwent a surgery with a long recovery period.

7.    In 20XX, you created a new company, in preparation for the purchase of another business.

8.    You were unable to work your normal job for several months, as you were required to care for your children and spouse.

9.    In 20XX your spouse engaged an accountant to develop a strategy for purchasing a new business.

10.  Your spouse also started searching again for potential businesses, registering interest with a business broker to source and negotiate a business deal.

11.  Due to a complication your spouse had to go back to return interstate in 20XX for a second operation that took several weeks to recover from.

12.  During this period, your spouse reached out to colleagues within the industry and signed a confidentiality agreement with a business broker. Your spouse was given advice from your accountant that the replacement asset required to be purchased in order to obtain replacement asset rollover, must be within the same industry. In accordance with this advice, your spouse continued to search but without success.

Other information provided

13.  On DD MM 20YY, after lodging your Application, you met with ATO officers who advised you that you did not have to buy a replacement business in the same industry as the business you sold. That is, the advice provided by your accountant was not correct and the replacement asset can be any business.

14.  You are close to sourcing a replacement asset within the next few months.

Assumptions

15.  You satisfied the basic conditions and have claimed the Small business roll-over relief under subdivision 152-E of the ITAA 1997 in relation to the capital gain made on the sale of your shares in the company.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-190

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

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

Income Tax Assessment Act 1997 section 104-197

Income Tax Assessment Act 1997 section 152-410

Income Tax Assessment Act 1997 section 152-415

Reasons for decision

All legislative references are to the ITAA 1997 unless otherwise stated.

1.    Subdivision 152-E contains the provisions to claim small business roll-over relief. The roll-over allows entities that satisfy the basic conditions in Subdivision 152-A to defer all or part of each capital gain arising from a CGT event happening to an active asset.

2.    The roll-over is available to the entity even if they have not acquired a replacement asset at the time of claiming the roll-over provided that a replacement asset is acquired by the end of the replacement asset period. CGT event J5 happens if a replacement asset is not acquired by the end of the replacement asset period.

3.    The replacement asset period is the period starting one year before and ending 2 years after the last CGT event in the income year for which you obtain the roll-over.

4.    Subsection 104-190(2) provides that the Commissioner may extend the replacement asset period.

5.    Although there are no set criteria as to how the Commissioner may exercise this discretion, the following factors are considered when determining whether to grant an extension to the asset replacement period:

•                     Is there evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension?

•                     Is there any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension)?

•                     Will the extension unsettle people, other than the Commissioner, or established practices?

•                     Will the extension be fair to people in like positions and the wider public interest?

•                     Is there mischief involved?

•                     What are the consequences of the decision?

Applying the law to the circumstances

6.    You have made multiple attempts to purchase a replacement asset whilst at the same time, moving your family and business to another State, assisting with your spouse's medical treatments and recovery that also included caring full time for your children.

7.    After recently finding out that you can purchase any replacement asset, and not the same type of business that was sold, you have identified possible replacement businesses to purchase, of which you anticipate one will be finalised within the next few months.

8.    After considering these circumstances, the Commissioner considers that you have provided an acceptable explanation for the delay in acquiring a replacement asset and have committed to acquiring one in the near future. There appears to be no mischief involved and will be no prejudice to the Commissioner in allowing an extension of the replacement asset period. Therefore, the Commissioner has decided to exercise his discretion under subsection 104-190(2) and extend the replacement asset period by 12 months.