Private ruling: small business rollover relief
Date of advice: 19 December 2016
Published: May 2017
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 June 20XX

Ruling: Q1: Will the Commissioner exercise discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow the taxpayer to choose as a replacement asset, an asset acquired more than two years after the disposal of the asset being replaced? | A1: Yes.

Relevant facts and circumstances: H and W ('you') operated a farming business. You sold the farm in late 20XX, making a capital gain. You applied the replacement asset rollover provision to the capital gain. You have not been able to acquire a replacement asset within the requisite two year period. You negotiated the purchase of a replacement farm, but this sale did not proceed. During the two year period, the relevant industry has been in downturn. You are still actively looking for a replacement farm, and anticipate purchasing within 12 months.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 104-185(1) | Income Tax Assessment Act 1997 Subsection 104-190(2) | Income Tax Assessment Act 1997 Subdivision 152-A

Reasons for decision: Summary: The small business rollover allows you to defer the capital gain made from a Capital Gains Tax (CGT) event if you acquire one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain relief are set out in Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997). For you to obtain a rollover, subsection 104-185(1) of the ITAA 1997 requires you to acquire a replacement asset within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) of the ITAA 1997 states that the Commissioner may exercise his discretion to extend those time limits. The relevant factors in determining whether to extend the replacement asset period are: ● 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, and ● a consideration of the consequences. Application to your circumstances In your case, you negotiated the purchase of a replacement farm, but this sale was unable to proceed. Additionally, the general downturn of the relevant industry has affected the ability to purchase a replacement asset. You are still actively looking for a replacement farm, and anticipate purchasing within 12 months. Having considered the relevant facts, the extension of time that you are requesting is reasonable. The Commissioner is able to apply discretion under subsection 104-190(2) of the ITAA 1997 and allow an extension to the time limit. In view of this, the time limit to acquire the replacement asset will be extended to 31 December 20XX.