Edited version of private advice

Authorisation Number: 1052327218188

Date of advice: 13 November 2024

Ruling

Subject: Commissioner Discretion - extension of time

Question 1

Will the Commissioner exercise the discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time required to 30 April 20XX to incur expenditure to obtain a replacement asset for a compulsory acquired asset?

Answer 1

Yes

This ruling applies for the following periods:

Year ended 30 April 20XX

Year ending 30 April 20XX

Year ending 30 April 20XX

The scheme commenced on:

1 May 20XX

Relevant facts and circumstances

The Taxpayer is an Australian resident for tax purposes.

The Taxpayer has a substituted accounting period ending XX April.

The Taxpayer owns the Land located at XX.

The Land was compulsorily acquired for the purpose of construction of infrastructure for the State Authority Project.

The Authority sent the Taxpayer a 'Notice of Acquisition' on XX October 20XX.

In October 20XX, the Authority made an initial offer of compensation in respect of the acquisition.

The Taxpayer has sought a market valuation from a qualified property valuer.

The property valuer valued the land at $XXX (exclusive of GST). The Taxpayer has accepted this valuation and is proceeding with negotiations with the Authority on the basis that it accurately reflects the value of the Land.

In November 20XX, the Taxpayer received an initial compensation sum of $XX received from the Authority.

At present the Taxpayer cannot confirm the final sum of compensation or when such amount could be received by the Authority.

As of XX October 20XX, the Taxpayer and the Authority have not yet agreed on the final sum of consideration payable by the Authority to the Taxpayer for the Land.

The Taxpayer is seeking a suitable replacement asset to invest the proceeds from the compulsory acquisition of the Land. The Taxpayer engaged buyer's agent, who has identified potential properties.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124-B

Income Tax Assessment Act 1997 section 124-70

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

Summary

The Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to extend the time required to 30 April 20XX to incur expenditure to obtain a replacement asset for the Land that was compulsory acquired.

Detailed reasoning

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) 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.

Under paragraph 124-75(3)(b) of the ITAA 1997, the Taxpayer would need to incur some of the expenditure no later than one year after the end of the income year.

However, due to the lack of certainty as to the final amount of compensation, this has delayed the ability of the Taxpayer to search for and acquire an appropriate replacement asset. On these facts, we would accept that there are special circumstances to allow further time to incur expenditure to acquire a replacement asset.

Furthermore, 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.

Accordingly, the Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to extend the time until 30 April 20XX, for the Taxpayer to incur expenditure to acquire a replacement asset.