Edited version of private advice

Authorisation Number: 1052257999065

Date of advice: 13 June 2024

Ruling

Subject: Commissioner descretion - extension of time rollover relief

Question

Will the Commissioner exercise the discretion in subsection 104-190(2) of the Income Tax Assessment Act 1997 to extend the replacement asset period to DD MM 20XX?

Answer

Yes.

This ruling applies for the following periods:

Year ending DD MM 20XX

Year ending DD MM 20XX

The scheme commenced on:

DD MM 20XX

Relevant facts and circumstances

You are the trustee for the XYZ Trust, which is a discretionary family trust.

The trust held more than X% of the shares in Company A.

In the 20XX income year, you sold a portion of your shares in Company A.

You identified the replacement asset being an interest in Company B.

You began negotiations to purchase an interest in Company B in MM 20XX.

The negotiations for the purchase have been prolonged due to the complex nature of the replacement asset business as there are a number of parties involved in the transaction. The seller also needed to obtain a formal valuation of the business which resulted in a restructure before your buy-in could occur. You also needed to seek your own appropriate accounting and legal advice before proceeding with the purchase.

Further delays have also occurred due to the parties involved in the transaction all having their own businesses to operate, as well as the difficult economic conditions over the last few years.

The seller has now officially made an offer to the XYZ Trust to purchase shares in Company B. The parties involved are working toward an effective date of DD MM 20XX for the transaction.

You have advised that you meet the maximum net asset value test and the active asset test and that you are a CGT concessional stakeholder in Company A.

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

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.

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

The Commissioner has considered the following factors in determining whether to exercise the discretion to extend the time limit set out in subsection 104-190(2) of the ITAA 1997:

•         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 to grant 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.

Application to your circumstance

You sold the shares in separate transactions between DD MM 20XX and DD MM 20XX. The replacement asset period therefore commenced on DD MM 20XX and ended on DD MM 20XX. The extension until DD MM 20XX to facilitate the transaction is approximately X months outside of the replacement asset period.

The prolonged delay in disposing of the property was due to the following reasons:

•         The length of time it took to identify the replacement asset, as your expertise is in a specific field

•         The complex nature of the replacement asset business which required parties on both sides of the transaction obtaining relevant advice before an offer to purchase could be made

•         Prolonged negotiations with the seller which took almost 12 months before an offer to purchase was made, which were drawn out due to the parties involved all operating their own businesses as well as the difficult economic climate

The circumstances of the case and explanation for the delay support an extension of the time limit.

The request for an extension to the time limit was received on DD MM 20XX, which was the date that the replacement asset period ended. There appears to be no prejudice on the Commissioner. The extension requested is reasonable as it is for X months outside of the 2-year period.

There is an acceptable explanation for the extension requested and it is fair and equitable in the circumstances to grant the extension. The decision to grant the extension is fair to those in similar positions and the wider public interest. There does not appear to be any mischief involved and no ill consequences resulting from the extension being granted.

Having considered your circumstances, the Commissioner will exercise the direction under subsection 104-190(2) of the ITAA 1997 to extend the replacement asset period to DD MM 20XX.

This ruling has not considered your eligibility for the CGT small business concessions. You should ensure that you satisfy the relevant conditions to apply the concessions.