Private ruling: Capital Gains Tax - Small Business Concessions - Extension of Replacement Asset Period
Date of advice: 7 December 2015
Published: February 2016
Ruling period: 1 December 20XX to 30 June 20YY | 1 July 20YY to 1 December 20YY
Date scheme commenced: On or after 1 December 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 to extend the replacement asset period? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The taxpayer disposed of an interest in a capital gains tax (CGT) asset and incurred a capital gain on the disposal. The taxpayer satisfies the basic conditions to be eligible for the small business rollover exemption as provided in Subdivisions 152-A and 152-E of the Income Tax Assessment Act 1997 . The taxpayer utilised the small business rollover exemption when lodging their return for the year ended 30 June 20XX, with the intention of acquiring a replacement asset within a two year period. The taxpayer's intention is to acquire a replacement asset, utilising the funds from the disposal of their interest in the original CGT asset. The taxpayer has not been successful in their search for a replacement asset. This has been influenced by circumstances including a lack of availability of suitable replacement assets; the reluctance of financiers to provide finance to prospective buyers; and the need for the taxpayer to nurse their spouse suffering a number of medical issues. These circumstances have curtailed the taxpayer's efforts to search for a replacement asset. The taxpayer has previously applied for - and has been granted - extensions of time on previous occasions for the same reasons as above. The taxpayer seeks a further extension of one year to the replacement asset period.

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 Section 152-415

Reasons for decision: Summary: The small business asset rollover concession in Subdivision 152-E of the ITAA 1997 allows a taxpayer to defer the capital gain made from a capital gains tax (CGT) event if the taxpayer acquires one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain such relief are set out in Subdivision 152-A of the ITAA 1997. For a taxpayer to obtain a rollover, subsection 104-185(1) of the ITAA 1997 requires the taxpayer 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. However, subsection 104-190(2) of the ITAA 1997 states that the Commissioner may exercise his discretion to extend the time limits stipulated in subsection 104-185(1) of the ITAA 1997. Based on the facts provided, the taxpayer has been unable to find a suitable replacement asset to purchase by the expiration of the replacement asset period as per the most recent extension granted. As a consequence, it is necessary for the Commissioner to exercise his discretion in the taxpayer's favour to further extend the time limit, as provided in subsection 104-190(2) of the ITAA 1997. In Hunter Valley Developments Pty Ltd and Ors v. Cohen (1984) 58 ALR 305; (1984) 3 FCR 344; (1984) 7 ALD 315 ( Hunter Valley Developments ), Wilcox J summarised principles to guide the exercise of the court's discretion. These principles are of a general nature applicable where there is a discretionary power to extend a procedural time limit. Such principles have been applied to the exercise of the Commissioner's power to extend the replacement asset period. Having regard to the principles encapsulated in the Hunter Valley Developments case, the Commissioner considered the following factors in determining whether his discretion should be exercised in extending the taxpayer's replacement asset period: • 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. • Consideration must be given to whether there is any mischief involved. • The consequences to the taxpayer following the Commissioner's decision as to whether or not to exercise his discretion to allow an extension is to be considered. Based on the Commissioner's consideration of the above factors, it is noted that: • The taxpayer has considered a number of potential replacement assets over the past year. However, the taxpayer's efforts have been significantly impaired by their spouse's most recent health issues and the lack of suitable replacement assets available on the market. Given the taxpayer's circumstances, it is considered that: • the taxpayer has made a genuine attempt to acquire a replacement asset • the explanation the taxpayer provided for requesting a further extension of one year to their replacement asset period is considered to be reasonable and acceptable, and • it would be fair and equitable in the taxpayer's circumstances for such an extension to be granted. • The granting of an extension in these circumstances would not cause any unsettling of persons other than the Commissioner, nor would it unsettle any established practices as the granting of any extension of time to taxpayers, dependent upon their facts, is itself an established practice. • The granting of an extension of time in these circumstances would not result in any amount of unfairness to people in similar circumstances or like positions. The availability to apply for an extension of time, in the same manner as the taxpayer has, is available to all people with similar circumstances as well as to the wider taxpaying public. • There is no mischief involved in the circumstances which have resulted in the taxpayer requesting an extension of time. • The consequences of granting the taxpayer an extension is that the taxpayer may be eligible for the small business rollover concession, and thus the capital gain that would have arisen on the disposal of the original CGT asset would be disregarded to the extent set out in section 152-415 of the ITAA 1997. If the extension is not granted, then the taxpayer would not be eligible for the small business rollover concession and therefore a capital gain liability will arise on the sale of their interest in the original CGT asset that was disposed of. • Whilst it is considered that the granting of an extension to the replacement asset period would give rise to a prejudice towards the Commissioner to the extent of the taxpayer's limited period of review, this is outweighed by the factors discussed above which collectively provide support for granting such an extension. Therefore, in light of the above, the Commissioner is able to apply his discretion pursuant to subsection 104-190(2) of the ITAA 1997 and allow a reasonable extension of one year to the taxpayer's replacement asset period. This extension will allow a new CGT asset (if acquired before the expiration of the extended replacement asset period) to be considered a replacement asset for the purposes of section 104-185 of the ITAA 1997.