Private ruling: replacement asset
Ruling period: 1 July 2009 to 30 June 2011
Date scheme commenced: The relevant date in the financial year ended 30 June 2007

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to further extend the time period to allow you to acquire a replacement asset? | A1: No.

Relevant facts and circumstances: You disposed of an active asset under section 152-40 of the ITAA 1997. You elected to defer the capital gain in respect of the relevant financial year. This election required a replacement asset to be acquired within two years after the relevant CGT event. Before this date you requested the Commissioner exercise his discretion and extend the period a further twelve months. You were granted this extension in a private ruling. A considerable time after this extension expired, you requested the Commissioner exercise his discretion again to further and retrospectively extend the period to replace the asset. This further extension request provided a list of your activities to acquire a replacement asset. The list included the types of assets you had considered purchasing, the times when those considerations had been undertaken and the reasons why the purchases had not eventuated. You stated you were about to sign a purchase contract for a replacement asset. You also advised that you had been actively looking for a suitable replacement active asset and the difficulties encountered. Many times over you had made a phone call regarding a prospective replacement asset but had not gone further as it was decided it was not a suitable replacement asset nor was there paperwork to support these phone calls. You said that the intention has always been to acquire a replacement asset and that further rulings were not requested at the time the approved ruling lapsed given that no negotiations were in progress. Later you advised that the purchase contract for the replacement asset had now been signed although the asset was first looked at 12 months before the purchase and you only got serious about it around six months before the purchase. You satisfy the Maximum Net Asset Value Test.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 104-185(1)(a) . | Income Tax Assessment Act 1997 subsection 104-190(2).

Reasons for decision: Detailed Reasoning - Commissioner's discretion - extension of time to acquire a replacement asset: Under paragraph 104-185(1)(a) of the ITAA 1997 in order to apply the small business rollover, a replacement asset must be acquired within two years after the relevant CGT event. Subsection 104-190(2) of the ITAA 1997 explains that the Commissioner may extend the replacement asset period. The Commissioner takes into account a number of factors in determining whether to exercise discretion to extend the replacement asset period in order for a taxpayer to acquire a replacement asset. The Commissioner considers the following: · there should be 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 · 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 · a consideration of the consequences. | Detailed Reasoning - Application to your circumstances: You disposed of an active asset. Therefore you were required to acquire a replacement asset within two years after the relevant CGT event. Before this date, the Commissioner exercised his discretion and extended the period a further twelve months. You provided a short list of your activities to acquire a replacement asset since this discretion was granted. The list included the types of assets you had considered purchasing, the times when those considerations had been undertaken and the reasons why the purchases had not eventuated. You also provided details of the asset eventually purchased. You also advised that you had been actively looking for a suitable replacement active asset and the difficulties encountered. Many times over you had made a phone call regarding a prospective replacement asset but had not gone further as it was decided it was not a suitable replacement asset nor was there paperwork to support these phone calls. You said that the intention has always been to acquire a replacement asset and that further rulings were not requested at the time the approved ruling lapsed given that no negotiations were in progress. After considering both the relevant factors for determining whether to exercise the Commissioner's discretion and the specific circumstances of this case, we consider that your circumstances do not warrant an extension of time. This is for the following reasons: · the Commissioner has already exercised his discretion to extend the period to acquire a replacement asset · the previous extension of time expired almost 1.5 years ago · there were no documented attempts to acquire a replacement asset for a period of many months · you applied for a further extension of time well after your previous extension expired · in the whole period since the original CGT event, insufficient attempts appear to have been made (from a documentation perspective) to acquire or enquire about a replacement asset · it would not be fair and equitable to other taxpayers who are required to replace their assets within the specified legislative timeframes. Therefore, the Commissioner will not exercise the discretion under subsection 104-190(2) of the ITAA 1997 to further extend the period for acquiring the replacement asset.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.