Private ruling: Capital gains tax - small business roll-over - extension to replacement asset period
Date of advice: 26 September 2016
Published: November 2016
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion to extend the replacement asset period under subsection 104-190(2) of the Income Tax Assessment Act 1997 to 30 June 20XX? | A1: Yes.

Relevant facts and circumstances: You operated a business as a franchisee until 20XX when it was compulsorily acquired from you by the franchisor. As a result of the disposal of the business to the franchisor, you had made a gross capital gain in the income year in which the business was sold, which was reduced after applying the active asset reduction. You elected to apply the small business roll-over to the capital gain made on the sale of the business in the income year in which the business was sold. In 20XX, your associate had a medical procedure and was diagnosed with a medical condition which resulted in them having an operation and undertaking ongoing medical treatment. A number of months later, your associate began full-time employment and remained in that position until 20XX. During the period of full-time employment, your associate had continued with ongoing medical treatment and had left their full-time employment when they were confident that their illness would not return. At that time they commenced searching for a new business. At this point, terms to purchase a new business have been reached and contracts are currently being prepared. It is expected that settlement on the purchase of the new business will occur in 20XX. Assumption This ruling has been prepared on the basis that you satisfied the basic conditions to access the small business capital gains tax (CGT) conditions including the active asset test.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 104-185(1)(a) | Income Tax Assessment Act 1997 subsection 104-190(2) | Income Tax Assessment Act 1997 subsection 104-197(1) | Income Tax Assessment Act 1997 subsection 104-197(5) | Income Tax Assessment Act 1997 Subdivision 152-E

Reasons for decision: Summary: The rules covering the small business roll-over are contained in Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997). The small business roll-over allows you to defer all or part of a capital gain from a capital gains tax (CGT) event happening to an active asset. CGT event J5 happens if you choose a small business roll-over under Subdivision 152E of the ITAA 1997 and you have not acquired a replacement asset by the end of the replacement asset period. The replacement asset period is the period starting one year before and ending two years after the last CGT event in the income year for which you obtain the roll-over. The replacement asset period may be extended or modified by the Commissioner. In determining whether to allow an extended asset replacement period the Commissioner considers the following factors: • whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension • whether there is any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension) • whether there is any unsettling of people, other than the Commissioner, or of established practices • the need to ensure fairness to people in like positions and the wider public interest • whether there is mischief involved, and • the consequences of the decision. Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner has applied the discretion and will extent the replacement asset period to 30 June 20XX.