Private ruling: CGT - replacement asset rollover relief
Date of advice: 13 February 2024
Published: 2 April 2024
Ruling period: Year ending on 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Will the Commissioner exercise the discretional power under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time period for you to acquire a replacement asset? | A1: Yes.

Relevant facts and circumstances: You owned a commercial property (the property). The property was used as a passive investment, leasing it to third parties. In 20XX, the property was compulsorily acquired by the Government for the property's agreed market value. A compensation amount for the compulsory acquisition was received in 20XX by way of disturbance. You did not receive any compensation for loss of rental income or any other matter. You have been actively looking for replacement properties similar to the compulsorily acquired property since mid-20XX by attending property auctions, inspected potential properties, closely monitor the property market and liaises with commercial real estate agents on a regular basis. You have been unable to successfully acquire a replacement property as the amount received for the acquisition was based on the property's market price in 20XX. As the market price of similar properties have since increased, the amount of compensation received is not enough to purchase similar commercial properties at today's market. Furthermore, you have been unable to borrow additional money to acquire a property. The Commissioner has previously issued a Private Ruling to you, granting an extension of time to acquire a replacement property. You remain committed to acquiring a replacement property and request another extension of time to acquire a property until 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 124-B | Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 section 124-75

Reasons for decision: Summary: The Commissioner will exercise his discretion under subsection 124-75(3) to allow you an extension of time to 20XX to incur expenditure to acquire another CGT asset under subsection 124-75(2). | Detailed Reasoning - Detailed reasoning: Roll-over relief for the compulsory acquisition of a CGT asset is available where the conditions outlined in Subdivision 124-B of the ITAA 1997 are met. Under subsection 124-70(1) of the ITAA 1997, an entity may be able to choose a replacement asset rollover if a CGT asset owned by the entity is compulsorily acquired by an Australian government agency as per paragraph 124-70(1)(a) of the ITAA 1997. A replacement-asset rollover allows you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens. Subsection 124-75(1) and paragraph 124-75(2)(a) state that if you receive money for the CGT event happening you can choose to obtain a roll-over if you incur expenditure in acquiring another CGT. Subsection 124-75(3) states that at least some of the expenditure must be incurred: (a) no earlier than one year, or within such further time as the Commissioner allows in special circumstances, before the event happens; or (b) 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. Subsection 124-75(4) of the ITAA 1997 requires that the replacement asset acquired must be used for the same or similar purpose as the taxpayer used the original asset. 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 this case, you received the property's market value for the property acquisition, as well as a compensation amount by way of disturbance. However, you have been unable to secure a suitable replacement asset within the 12-month period due to the rise in the value of properties in the current market, the minimal compensation provided, and being unable to borrow money. You have also provided evidence that you have been actively searching for a replacement asset for the compulsorily acquired property by attending property auctions, inspected potential properties, closely monitor the property market and liaising with commercial real estate agents on a regular basis. Therefore, the Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow an extension of time to obtain a replacement asset.