Private ruling: Capital Gains Tax - Small Business Replacement Asset Rollover Extension
Date of advice: 11 December 2015
Published: February 2016
Ruling period: 1 July 2015 - 30 June 2016 | 1 July 2016 - 30 June 2017 | 1 July 2017 - 30 June 2018
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) and allow you 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: You sold a business in 20XX and included a capital gain in the 20XX income tax year. You elected to utilize the small business replacement asset rollover. As a result, you were required 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. You sought to purchase and operate a business, you acquired relevant loan funding to purchase the business, however the venture can no longer proceed as the business has been withdrawn from sale. You are actively seeking other business ventures in order to comply with the small business rollover concession conditions.

Relevant legislative provisions: Income Tax Assessment Act 1997 104-10 | Income Tax Assessment Act 1997 104-185 | Income Tax Assessment Act 1997 104-190

Reasons for decision: Summary: The small business roll-over 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 ITAA 1997. For you to obtain a roll-over, subsection 104-185(1) requires you to acquire a replacement asset within a period starting one year before, and ending two years after the date of the disposal of the original asset. Subsection 104-190(2) states that the Commissioner may exercise his discretion to extend those time limits. In circumstances where you have entered into a contract for the disposal of the asset, paragraph 104-10(3)(a) states that the time of the event is when you enter into the contract. In the present case, the acquisition of a replacement is likely to occur outside the two year limit. Where that is the case, it is necessary for the Commissioner to exercise his discretion in your favour if the replacement is to be allowed. In determining if the discretion would be exercised the Commissioner has considered the following factors: • 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 of 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. | Detailed Reasoning - Conclusion: You disposed of your business. You have made efforts to secure a replacement business however you have been unable to secure a new business venture. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow a two year extension of time. Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions. The extension will allow the new asset to be considered a replacement asset for the purposes of section 104-185 of the ITAA 1997.