Edited version of private advice

Authorisation Number: 1052258597318

Date of advice: 4 June 2024

Ruling

Subject: Commissioner discretion - extension of time

Question

Will the Commissioner exercise the discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow you further time to incur expenditure of a capital nature in replacing, repairing or restoring assets destroyed by fire?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20YY

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You own a facility comprising of several assets, which you used in the course of carrying on a business.

In 20XX, bushfires impacted the area resulting in the destruction of the assets.

You have received insurance proceeds due to the destruction of the assets.

You are in the process of replacing the assets and have incurred expenditure.

You intend to incur more expenditure in the process of replacing the assets.

Due to your business being located in a remote location, a lack of accommodation and many other buildings in the area affected there is limited availability of tradespeople.

You are also experiencing delays due to evolving local and state government policies which directly impact your business.

You have incurred some expenditure in replacing, repairing and restoring the damaged and destroyed assets.

The Commissioner has previously granted an extension of time to repair, replace or restore the CGT assets.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 subsection 124-70(1)

Income Tax Assessment Act 1997 subsection 124-75(1)

Income Tax Assessment Act 1997 subsection 124-75(3)

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

Income Tax Assessment Act 1997 paragraph 124-70(1)(a)

Income Tax Assessment Act 1997 paragraph 124-75(2)(a)

Reasons for decision

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

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 destroyed per paragraph 124-70(1)(b) of the ITAA 1997.

Subsection 124-75(1) and paragraph 124-75(2)(a) state that if you receive money for the CGT event happening you can choose to obtain a roll-over if you incur expenditure in acquiring another CGT asset.

Subsection 124-75(3) states that 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.

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.

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? provides guidance on interpreting subsection 124-75(3) of the ITAA 1997.

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

•         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?

In this case, you received insurance proceeds due to the destruction of a collection of assets used in the course of carrying on a XXXX business. However, you have been unable to rebuild suitable replacement assets within the 12-month period due to numerous delays including delays from the state government, difficulties obtaining tradespeople and a lack of accommodation which are all factors outside of your control.

You have also provided evidence that you have actively tried to rebuild and secure replacement assets for the destroyed property by incurring expenditure for planning fees, hiring an architect and site preparation.

Furthermore, 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.

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.