Edited version of private advice

Authorisation number: 1052294752284

Date of advice: 23 August 2024

Ruling Subject: Commissioner discretion - extension of time

Question

Will the Commissioner exercise the discretion to extend the period in which to incur expenditure to acquire another CGT asset to 30 September 2024 pursuant to subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the compulsory acquisition roll-over under Subdivision 124-B of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

Year Ending 30 June 20YY.

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The company owned a commercial property (the property).

The property was used as a passive investment, leasing it to third parties.

In April 20YY, the property was compulsorily acquired.

A compensation amount for the compulsory acquisition was received in May 20YY by way of disturbance.

The company did not receive any compensation for loss of rental income or any other matter.

Since receiving the funds, the company has sought to acquire replacement property with adequate yield/rate of return.

The Commissioner issued a Private Ruling, granting an extension of time to acquire a replacement property until 30 June 20YY.

You have been actively looking for replacement properties similar to the compulsorily acquired property since mid-20YY by attending property auctions, inspected potential properties, closely monitor the property market and liaises with commercial real estate agents on a regular basis.

The company was able to acquire a replacement asset in June 20YY which was within the time allowed by the extension to the replacement asset period by way of the Commissioner's discretion.

However, this replacement asset cost under the compensation amount as the company was unable to find a suitable asset of equal value.

The company intended to fully replace the original property and is searching for a second replacement asset.

The company is committed acquire another replacement asset that will fully absorb the balance of the capital gain by no later than 30 September 20YY.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 section 124-70

Income Tax Assessment Act 199 section 124-75

Reasons for decision

Question

Will the Commissioner exercise the discretion to extend the period in which to incur expenditure to acquire another CGT asset to 30 September 2024 pursuant to subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the compulsory acquisition roll-over under Subdivision 124-B of the ITAA 1997?

Detailed Reasoning

Roll-over relief for the compulsory acquisition of a 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 compulsorily acquired by an Australian government agency as per paragraph 124-70(1)(a) of the ITAA 1997. A replacement-asset rollover allows you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens.

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.

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.

Tax Determination 2000/41: Income tax: capital gains: are the two requirements in subsection 124-75(4) of the Income Tax Assessment Act 1997 for a CGT asset acquired to replace an original asset alternative and mutually exclusive requirements?(TD 2000/41) states at paragraph 13: There is no restriction on the number of CGT assets which may be treated as replacement assets for an original CGT asset in the replacement-asset roll-over provisions in Subdivision 124-B provided that they each satisfy the relevant requirements of that Subdivision.

In determining whether to allow an extended asset replacement period, the Commissioner considers the following factors:

•         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 provide such an extension

•         whether there is 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)

•         whether there is any unsettling of people, other than the Commissioner, or of established practices

•         the need to ensure fairness to people in like positions and the wider public interest

•         whether there is mischief involved, and

•         the consequences of the decision.

Application of Circumstances

The company received funds for the property acquisition in April 2022, as well as a further compensation by way of disturbance in May 2022.

The company found a replacement asset in June 2024, but it cost less compensation amount as the company was unable to find a suitable asset of equal value.

The company intended to fully replace the original property and is searching for a second replacement asset.

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 until 30 September 2024.