Edited version of private advice

Authorisation Number: 1052294664490

Date of advice: 27 August 2024

Ruling

Subject: CGT - replacement asset period - Commissioner's discretion

Question 1

Will the Commissioner exercise the discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period?

Answer 1

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You sold your property giving rise to a CGT event.

You elected to apply the CGT small business roll-over concession to the CGT gain.

You advised that your intention is to acquire another business as a replacement asset. However, you have found it extremely difficult to purchase a suitable business.

You have provided evidence that you have made numerous enquiries and attempts to purchase a suitable property/business.

You have not been able to secure a suitable property to purchase to expand your primary production business.

You have advised that you are currently in talks regarding the acquisition of a business, however this was not completed.

As you do not know when the acquisition will be finalised, you have requested a further extension of time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 152-E

Income Tax Assessment Act 1997 Subdivision 152-A

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 section152-415

Reasons for decision

Subdivision 152-E of the ITAA 1997 contains the provisions regarding the small business roll-over relief. Under sections 152-410 and 152-415 of the ITAA 1997, the small business roll-over relief allows entities that satisfy the conditions in Subdivision 152-A of the ITAA 1997 to defer all or part of each capital gain arising from a CGT event happening to an active asset.

Under note 1(a) of section 152-410 of the ITAA 1997, this 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: pursuant to section 104-197 of the ITAA 1997.

Subsection 104-190(1A) of the ITAA 1997 states that the replacement asset period is the period starting one year before and ending two years after the last CGT event in the income year for which you obtain the roll-over.

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

The Commissioner considers the following factors 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?

The Commissioner has decided to exercise his discretion under subsection 104-190(2) of the ITAA 1997 and extend the replacement asset period. This is because:

•                     You have provided evidence that shows numerous enquiries to purchase a suitable property/business during the replacement asset. We consider that you have made continuous efforts to acquire a replacement asset and accept that there are special circumstances to allow further time for you to finalise acquisition of a property/business.

•                     The period of the extension remains within a single income tax year.

•                     Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar circumstances.