Edited version of private advice

Authorisation Number: 1052293591114

Date of advice: 29 August 2024

Ruling

Subject: CGT - extension of time to obtain replacement asset

Question

Will the Commissioner exercise the discretion under subsection 124-75(3) of the Income Tax Assessment 1997 (ITAA 1997) to extend the time required to 30 June 20XX for Company X to obtain a replacement asset for a compulsorily acquired asset?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commenced on:

1 July 202X

Relevant facts and circumstances

On XX, the Commonwealth of Australia compulsorily acquired (under the Lands Acquisition Act 1989) a portion of the land owned by Company X.

The family group have owned the land since XX.

In 19XX the lease was transferred to Company X.

A right was granted for Company X and related entities/individuals to occupy the land.

A draft claim for the compulsorily acquired land has been submitted to the Commonwealth in XX but is yet to be finalised.

A draft claim for the loss of the use of the land by the XX business has been submitted to the Commonwealth but is yet to be finalised.

At this point in time, the total quantum of the compensation remains unknow.

Company X cannot commit to the acquisition of a replacement asset until such time as the quantum of the compensation amount can be ascertained.

Company X is still in the process of, and in negotiation regarding their formal claim for compensation for the land compulsorily acquired by a Government agency.

During this timeframe, Company X changed law firms which caused delays as the Company X lawyer will not commit resources to the claim until the Commonwealth agrees to funding the fees.

As Company X does not know when the amount will be ascertained, Company X requests a further extension of time until 30 June 20XX.

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 124-70(2).

Income Tax Assessment Act 1997 section 124-75

Income Tax Assessment Act 1997 subsection 124-75(2)

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

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

Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision

Subdivision 124-B of the ITAA 1997 explains the circumstances when a rollover is available for an asset that is compulsorily acquired, lost or destroyed. If you receive money as a result of the compulsory acquisition, you can only choose a rollover if you incur expenditure in acquiring another capital gains tax asset.

Under subsection 124-70(1) of the ITAA 1997, an entity may be able to choose a replacement asset rollover if a Capital Gains Tax (CGT) asset owned by the entity is compulsorily acquired by an Australian government agency.

Subsection 995-1(1) of the ITAA 1997 defines an Australian government agency as a Commonwealth, a State or a Territory, or an authority of Commonwealth or of a State or Territory.

A further requirement is that the owner of the original asset must receive money or another CGT asset or both for the CGT event to be eligible for a rollover (subsection 124-70(2) of the ITAA 1997).

Should the owner of the original asset receive money, section 124-75 of the ITAA 1997 then provides further requirements which must be satisfied if only money is received for the event happening.

Subsection 124-75(2) of the ITAA 1997 requires that the owner of the asset must incur expenditure in acquiring another CGT asset. Paragraph 124-75(3)(b) of the ITAA 1997 requires the entity to incur at least some of the expenditure in acquiring this replacement CGT asset 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.

Special Circumstances

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? (TD 2000/40) provides guidance on interpreting subsection 124-75(3) of the ITAA 1997, in particular what could be considered 'special circumstances'.

TD 2000/40 outlines that the expression 'special circumstances' in the context of subsection 124-75(3) of the ITAA 1997 by its nature is incapable of a precise or exhaustive definition. What constitute 'special circumstances' depends on the facts of each particular case. Some examples of special circumstances are provided under the TD 2000/40.

Example 3 in TD 2000/40 states:

Graeme had a commercial property compulsorily acquired by a State authority. Graeme is having a protracted legal dispute with the authority over the quantum of the compensation. On these facts, we would accept that there are special circumstances to allow further time.

Further, in determining whether the discretion will be exercised, the Commissioner also considers the following factors:

•         there should be evidence of an acceptable explanation for the period of the extension requested and that it would be fair and equitable in the circumstances to provide such an extension.

•        account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension.

•        account must be had of any unsettling of people, other than the Commissioner, or of established practices.

•        there must be a consideration of fairness to people in like positions and the wider public interest.

•        whether there is any mischief involved; and

•        a consideration of the consequences.

The Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow Company X an extension to obtain a replacement asset for property that was compulsory acquired, until 30 June 20XX.