Private ruling: Capital gains tax
Published: March 2014
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time to obtain a replacement asset? | A1: No.

Relevant facts and circumstances: You purchased a property with the intention of using it as a holiday home. The property was rented to various tenants. You transferred the property to a superannuation fund. During the relevant financial year the property was transferred back to you. The property was destroyed by a fire. You received a payout from your insurance company in the relevant financial year. An entity was interested in purchasing the land, but you have not sold it. You were considering building on the land or purchasing another block or holiday home. You were not aware of the rollover or the timeframe associated with purchasing a replacement asset. It was always your intention to purchase or build another house with the money received from the insurance company. You believe you have located a property to purchase as a replacement asset.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 124-B | Income Tax Assessment Act 1997 subsection 124-75(3)

Reasons for decision: Summary: Subdivision 124-B of the ITAA 1997 explains the circumstances when a rollover is available for an asset that is compulsorily acquired, lost or destroyed. If you receive money as a result of an capital gains tax (CGT) asset being lost or destroyed, you can only choose a rollover if you incur expenditure in acquiring another CGT asset. Under subsection 124-75(3) of the ITAA 1997, you must incur at least some of the expenditure no earlier than one year before the event happens or, within one year after the end of the income year in which the event happens. This period may be extended in special circumstances as outlined in example 2 in Taxation Determination TD 2000/40: Gordon owned a wool processing factory which was destroyed by fire. Gordon immediately commences to negotiate to purchase a nearby factory, taking possession pending settlement. After lengthy negotiations, however, the purchase of the factory falls through. He then purchases another property but just outside the 2 year time period. On these facts, we would accept that Gordon has done what is reasonable to acquire a replacement asset and we would allow him further time. However, example 4 in TD 2000/40 outlines the situation where an extension cannot be granted due to the absence of special circumstances: Daisy and Damien own a rental property by the sea. The property is resumed for a government project and compensation is paid shortly afterwards. At the end of the statutory 2 year period (subsection 124-75(3)), Daisy and Damien had failed to acquire a replacement asset or to take measures to acquire one because they did not know that they had to do so within a particular time frame. This is an example where special circumstances would not exist for the Commissioner to allow further time. Your case is similar to example 4 provided in TD 2000/40 in that you were unaware that you had to purchase the replacement asset within a particular time frame. We do not consider that your situation represents special circumstances for the purposes of subsection 124-75(3) of the ITAA 1997. Taking your full circumstances and the above principles into account, the Commissioner will not allow an extension of time to acquire a replacement asset.