Edited version of private advice

Authorisation Number: 1052373650310

Date of advice: 20 March 2025

Ruling

Subject: CGT - small business concessions

Question 1

Will the Commissioner exercise the discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension to the replacement asset period so the family trust can apply the small business rollover?

Answer 1

Yes. The Commissioner will exercise the discretion under subsection 104-190(2) of the ITAA 1997 to extend the period for acquiring a replacement asset so the family trust can apply the small business rollover. It is acknowledged:

•                     the process for finding a replacement asset began within the replacement asset period,

•                     the replacement asset will be acquired after the replacement asset period,

•                     the delay in acquiring the replacement asset was beyond the family trust's control, and

•                     the Commissioner considers the circumstances an acceptable reason to extend the replacement asset period.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

XXX 20XX

Relevant facts and circumstances

The named beneficiaries to the family trust are Beneficiary 1 and Beneficiary 2. As per the trust deed, Beneficiary 3, Beneficiary 4 and Beneficiary 5 are also eligible beneficiaries.

Beneficiary 2 and Beneficiary 3 are spouses. Beneficiary 4 and Beneficiary 5 are Beneficiary 2 and Beneficiary 3's children. Beneficiary 1 was Beneficiary 2's parent. In XXX 20XX, Beneficiary 1 passed away.

The family trust owned units in the unit trust that owned the property. The family trust ran the X business.

In XXX 20XX, the family trust disposed of its units in the unit trust. This was due to the circumstances experienced by Beneficiary 2 and Beneficiary 3's family at the time. Beneficiary 2 and Beneficiary 3 had an intention to acquire a new asset of a similar nature under the family trust.

In XXX 2023, Beneficiary 2 and Beneficiary 3 started looking for a replacement asset. Shortly after, they relocated states. This was along with Beneficiary 4. They relocated to have the support of family after Beneficiary 1's passing. They could not get this support where they had previously lived. In XXX 20XX, Beneficiary 5 was born.

Beneficiary 2 and Beneficiary 3 have been looking at assets daily. They considered potential acquisition of the following assets under the family trust:

Property 1

This asset was listed for sale in XXX 20XX. Beneficiary 2 and Beneficiary 3 reviewed the business memorandum but did not arrange an inspection.

Property 2

This asset was listed for sale in XXX 20XX. After reviewing the business operating figures and considering the high asking price, Beneficiary 2 and Beneficiary 3 did not inspect this asset.

Property 3

This asset was listed for sale in XXX 20XX. After reviewing the business operating figures and considering the high asking price, Beneficiary 2 and Beneficiary 3 did not inspect this asset. Having previously operated a business nearby, they had a good understanding of the physical layout of the building.

Property 4

This asset was listed for sale in XXX 20XX. After reviewing the business operating figures and considering the high asking price, Beneficiary 2 and Beneficiary 3 did not inspect this asset.

Property 5

This asset was listed for sale in XXX 20XX. Beneficiary 2 and Beneficiary 3 had travelled the area in XXX 20XX. They received the business memorandum and found the property was leasing X Land. They also considered the difficulty running a business in a unique location. They concluded the risk of a X Land lease and the ambiguity of a privately run transportation operator too high.

Property 6

This asset was listed for sale in XXX 20XX. After reviewing the business operating figures and considering the high asking price, Beneficiary 2 and Beneficiary 3 did not inspect this asset.

Property 7

This asset was listed for sale in XXX 20XX. After reviewing the business operating figures and considering the high asking price, Beneficiary 2 and Beneficiary 3 did not inspect this asset.

Property 8

This is a entertainment venue. This asset was listed for sale in XXX 20XX. As of XXX 20XX, Beneficiary 2 and Beneficiary 3 are currently seeking information about the franchise agreement.

Property 9

This asset was listed for sale in XXX 20XX. As of XXX 20XX, Beneficiary 2 and Beneficiary 3 are currently reviewing the business operating figures and are considering organising an inspection.

Relevant legislative provisions

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

Reasons for decision

If the family trust chose a small business rollover under Subdivision 152-E of the ITAA 1997, for a CGT event that happens in relation to a CGT asset in an income year, the replacement asset period, as defined under subparagraph 104-190(1A)(b)(i) of the ITAA 1997, ends 2 years after the last CGT event in the income year for which the trust obtains the rollover. As per subsection 104-190(2) of the ITAA 1997, the replacement asset period can also be extended at the Commissioner's discretion.

The relevant factors in determining whether to extend the replacement asset period are:

•                     whether there is evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension,

•                     whether there is 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,

•                     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 any mischief involved, and

•                     the consideration of the consequences.

Application to your circumstances

The family trust is yet to acquire a replacement asset and it has been more than 2 years since they have disposed the original asset.

The family trust has demonstrated a commitment in purchasing eligible rollover asset/s. It is noted that extenuating circumstances arose, including the passing of one of the beneficiaries who was a family member of the remaining beneficiaries.

The Commissioner will grant an extension of time in this case because:

•                     there is an acceptable explanation as to why the delay occurred,

•                     it would not be unfair and unequitable to entities in similar circumstances or like position to the family trust, and

•                     the beneficiaries had minimal control over the circumstances which arose around the replacement asset period.