Edited version of private advice

Authorisation Number: 1052306033561

Date of advice: 16 September 2024

Ruling

Subject:CGT - small business concessions

Question

Will the Commissioner extend the replacement asset period, pursuant to subsection 104-190(2) of the ITAA 1997 such that the period ends on XX March 20XX?

Answer

Yes, the Commissioner will exercise discretion under subsection 104-190(2) of the ITAA 1997 and extend the replacement asset period until XX March 20XX.

This ruling applies for the following period:

Year ending XX June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You conducted an online retail business.

You entered an Asset Purchase Agreement to dispose of your assets. The terms of this agreement included a deferred settlement arrangement. This deferred settlement arrangement is a look-through earnout right.

The deferred settlement arrangement included two payment periods.

The assets disposed of are regarded as active assets.

You chose to apply the small business CGT rollover concession to the capital gain made.

Your aggregated turnover for the previous year was less than $2 million.

You were uncertain about how much of the purchase price would be received.

You received incorrect advice from a tax advisor and had the original advice reviewed which caused a further delay in obtaining a replacement asset.

You conducted feasibility studies and due diligence for on several potential replacement assets.

You have a potential replacement asset identified.

Relevant legislative provisions

Income Tax Assessment Act 1997, subsection 104-190(1A)

Income Tax Assessment Act 1997, subdivision 152-E

Income Tax Assessment Act 1997, subsection 104-190(2)

Reasons for decision

Under section 152-40 of the ITAA 1997, you can choose to obtain a roll over even if you have not yet acquired a replacement asset.

Subsection 104-190(1A) of the ITAA 1997 outlines the replacement asset period for small business roll-overs under subdivision 152-E of the ITAA 1997.

The deferred settlement arrangement is a look-through earnout right.

The replacement asset period starts one year before the last CGT event and 6 months after the latest time a possible financial benefit becomes or could become due under a look-through earnout right relating to the CGT asset and disposal as per, subparagraph 104-190(1)(b)(ii).

On the XX October 20XX the possible financial benefit became due and payable under the look-through earnout right. Therefore, the replacement asset period ended on XX April 20XX.

The Commissioner has the discretion to extend the replacement asset period as per subsection 104-190(2) of the ITAA 1997.

You were unable to obtain a replacement asset within the specified period for several reasons. Including:

•                     You were uncertain as to how much of the purchase price would be received and available to re-invest in a replacement asset.

•                     You received incorrect advice from a tax advisor and had the original advice reviewed.

You have researched several potential replacement assets.

You have a potential replacement asset identified that you intend to pursue.