Private ruling: Replacement asset rollover extension
Date of advice: 9 November 2015
Published: November 2015
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

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

Relevant facts and circumstances: In 20XX you and your spouse sold your property which was originally purchased in 200X. You both generated a capital gain on the property and would like to roll over the gain into a replacement asset. You and your spouse have been looking for a mixed farming property (the replacement asset) to run livestock and grain operations. It has been difficult to secure a suitable property for various reasons including: • Expectations and values placed on properties by vendors in recent years have been unrealistic making it difficult to negotiate. • Drought conditions and low commodity prices have made it difficult to identify sustainable properties that will generate required returns and margins of safety. • You require a property within Y kms of your current employment. This has limited your options in purchasing a property. • You are committed to developing and operating a sustainable mixed farming operation and this requires you to be extra cautious as you are re-entering the market. • Conditions for loans up until recently haven't been suitable for your needs to acquire the replacement asset. There has recently been a turnaround in conditions for primary producers which have lifted business confidence in your area of expertise. This has been brought around by the low Australian dollar, increased value for livestock as well as greater demand from both overseas and local processers. The borrowing potential for banks has recently improved due to lower interest rates and commodity prices; which has relaxed the criteria on lending. You have made ongoing efforts to acquire a replacement asset and have provided a list of the properties you have considered. These properties have been affected by a variety of issues which have made them unsuitable for your needs.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-190(2)

Reasons for decision: Summary: In order to apply the small business rollover, a replacement asset must be acquired within two years after the relevant capital gains tax event. The Commissioner may extend the replacement asset period in certain circumstances under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997). 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 • a consideration of the consequences. | Detailed Reasoning - Application to your circumstances: You rolled over a capital gain made on the disposal of land. You have been unable to acquire a suitable replacement asset within the replacement asset period. You have considered the purchase of a number of properties however these have not been suitable to your needs. We consider that you have made ongoing efforts to acquire a replacement asset. Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner has applied his discretion and will extend the replacement asset.