Private ruling: Small business concessions
Date of advice: 19 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner use his discretion to extend the replacement asset period pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the Small Business capital gains tax (CGT) replacement asset roll-over relief? | A1: Yes.

Relevant facts and circumstances: You entered into a contract to sell a set of assets comprising a business to a third party purchaser. As a result of entering into the contract to dispose of the business, a CGT event happened from which you made a capital gain. You applied the small business CGT concessions to reduce the assessable amount of the capital gain you made. After you applied the general CGT 50% discount, the small business CGT 50% reduction and the small business retirement exemption to the gains, an amount remained. You chose to obtain the small business rollover in respect of the remaining capital gain. The assets selected as the new active assets to be acquired under the rollover were to be the equipment and fit out of a new business. A new site was found and was part of a larger parcel of land owned by an unrelated party. Before the current owner of the site was able to acquire the parcel of land it was necessary for the former owner to subdivide the site. The responsibility for the subdivision of the existing property rested with the former owners. Related parties to you entered into a call option over the site allowing it to acquire the site as and when, development approvals for the subdivision of the underlying relevant titles were completed. At the time the option agreement was entered into, it was projected that these conditions would both be met within the two year period. As time passed and the subdivision process continued to be delayed, it was eventually agreed between the parties that construction would begin in advance of both the subdivision of the site and finalisation of the acquisition of the site. Due to the delays it was not possible to complete all of the works which will represent the replacement assets by the expiry of the two year period.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-190(2) | Income Tax Assessment Act 1997 subdivision 152-A | Income Tax Assessment Act 1997 subdivision 152-E

Reasons for decision: Summary: The small business roll-over outlined in subdivision 152-E of the ITAA 1997 allows you to defer the capital gain made from a CGT event if you acquire one or more replacement assets and satisfy certain conditions. The basic conditions which also must be met to obtain relief are set out in Subdivision 152-A of the ITAA 1997. You can choose the roll-over even if you have not yet acquired a replacement asset. However CGT event J5 happens if, by the end of the replacement asset period, you do not acquire a suitable replacement asset which is an active asset. CGT event J6 happens if, by the end of the replacement asset period, the cost base (first, second and fourth elements only) of the replacement asset(s) you acquired is less than the capital gains disregarded under the roll-over provisions. The replacement asset period starts one year before, and ends 2 years after, the last CGT event in the income year for which you obtain the roll-over. Subsection 104-190(2) of the ITAA 1997 provides that the Commissioner may extend the replacement asset period. You identified a site for your new business early in the replacement asset period however due to delays incurred by the former owners in subdividing the site you were unable to complete the fit out works and acquire the replacement assets by the end of the two year replacement asset period. In determining if the discretion would be exercised the Commissioner has considered the following factors: • evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension) • prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension) • unsettling of people, other than the Commissioner, or of established practices • fairness to people in like positions and the wider public interest • whether any mischief is involved, and • consequences of the decision. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow an extension of time.