Edited version of private advice

Authorisation Number: 1052308644666

Date of advice: 23 September 2024

Ruling

Subject:Commissioner's discretion - extension of time

Question:

Will the Commissioner exercise the discretional power under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the one-year period for the taxpayer to acquire a replacement asset to DD MM YYYY?

Answer:

Yes

This ruling applies for the following periods:

DD MM YYYY to DD MM YYYY

The Scheme commences on:

DD MM YYYY

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Background information

The Trust owned a property located at XYZ (the Property).

The Property was compulsorily acquired by a State Authority in MM YYYY.

Possession was taken at that date.

The Trust received $XXX in MM YYYY, being xx% of the compensation offered.

The Trust believed the State Authority's preliminary valuation was fundamentally underestimated and sought a settlement in excess of $XXX. Negotiations for settlement took some time.

On or around DD MM YYYY, the State Authority agreed to a market value of $XXXXXX.

The Trust received the balance of funds in MM YYYY.

The Trust has only been able to commence searching for a replacement asset in MM YYYY, once they received the agreed market value of the Property.

To date, in the past xx months, the Trust has been unable to find a suitable replacement asset due to a difficult property market for properties of this value.

Therefore, the Trust is requesting that the Commissioner takes into account these special circumstances and grant an extension to the period to acquire a replacement asset to DD MM YYYY.

Previous private rulings

The Commissioner has previously issued a Private Binding Ruling to the Trust (Authorisation No. xxxxxx), dated DD MM YYYY where an extension was granted to extend the time to find a replacement asset until DD MM YYYY.

The Commissioner has previously issued a Private Binding Ruling to the Trust (Authorisation No. xxxxxx), dated DD MM YYYY where an extension was granted to extend the time to find a replacement asset until DD MM YYYY.

Information provided

You have provided a number of documents containing detailed information in relation to the Trust's application including:

•                     Private Binding Ruling (PBR) Application, dated DD MM YYYY.

•                     Responses to a request for further information received DD MM YYYY.

We have referred to the relevant information within these documents in applying the relevant tests to your circumstances.

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 subsection 124-75(3)

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

Income Tax Assessment Act 1997 subsection 124-75(5)

Income Tax Assessment Act 1997 subsection 124-75(6)

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

Further issues for you to consider

Not applicable.

Reasons for decisions

All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.

Summary

The Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to extend the one-year period for the Trust to acquire a replacement asset until DD MM YYYY.

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 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). On satisfying these conditions, section 124-75 of the ITAA 1997 provides other requirements which must be satisfied if 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. Subsection 124-75(3) of ITAA 1997 requires the entity to incur some of that expenditure either one year before or one year after the end of the income year in which the event happens, or within such further time as the Commissioner allows in special circumstances.

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. This replacement asset cannot become an item of trading stock just after the acquisition or be a depreciating asset (subsection 124-75(5) of ITAA 1997), nor become a 'registered emissions unit' just after the acquisition (subsection 124-75(6) of ITAA 1997).

In determining whether special circumstances exist for the Commissioner to extend the period in which to acquire a replacement asset, Taxation DeterminationTD 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 are 'special circumstances'.

TD 2000/40 states that the expression 'special circumstances' by its nature is incapable of a precise or exhaustive definition. What constitutes 'special circumstances' depends on the facts of each particular case.

Example 3 in TD 2000/40 provides an illustration in which a taxpayer's asset is compulsorily acquired by a State authority. The taxpayer is then involved in a protracted legal dispute with the authority over the quantum of the compensation. In this instance, the Commissioner accepts that there are special circumstances to allow further time for the taxpayer.

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.

Application to your circumstances

The Property located at XYZ was compulsorily acquired by a State Authority in MM YYYY.

The Trust received $XXX in MM YYYY, being xx% of the compensation offered.

The Trust believed the State Authority's preliminary valuation was fundamentally underestimated and sought a settlement in excess of $XXXXXX. Negotiations for settlement took some time.

Given that the Trust has received approximately less than half the potential consideration as of MM YYYY, it had not been possible to acquire a replacement asset. Additionally, without a final valuation/price, the rollover amount was not known.

Following lengthy legal negotiations, settlement took some time. In MM YYYY, the State Authority agreed to a market value of $XXXXXX, and the Trust received the balance of funds in MM YYYY. The Trust has only been able to commence searching for a replacement asset in MM YYYY, once they had received the agreed market value of the property.

TD 2000/40's Example 3 provides an illustration in which a taxpayer's asset is compulsorily acquired by a State authority. The taxpayer is then involved in a protracted legal dispute with the authority over the quantum of the compensation. In this instance, the Commissioner accepts that there are special circumstances to allow further time for the taxpayer.

The Trust's situation mirrors Example 3 of the special circumstances within TD 2000/40.

Based on these facts, it is deemed that special circumstances do exist to warrant the Commissioner to exercise his discretion and allow an extension of time to obtain a replacement asset, as it would be fair and equitable to do so, given that the circumstances represent an acceptable explanation for the delay.

Also, 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 for landholdings that were compulsorily acquired by a State Authority until DD MM YYYY.

Conclusion

The Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to extend the one-year period for The Trust to acquire a replacement asset until DD MM YYYY.

ATO view documents

Taxation Determination TD 2000/40: Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997.

Other references (non ATO view)

Not applicable

Key words

Capital Gains Tax (CGT), discretional power.