Private ruling: Replacement asset
Date of advice: 18 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the Commissioner use his discretion to extend the replacement asset period pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the Small Business capital gains tax (CGT) replacement asset roll-over relief to 30 June 2016? | A1: Yes.

Relevant facts and circumstances: You disposed of a business and therefore had a CGT event during the relevant financial year. You elected to defer the capital gain under the small business roll-over concession. Within a year of disposing of the business you exchanged contracts to lease a property to commence another business. However, the development application you submitted to the local council was required by the council to be revised and then your revised application was rejected. You then applied for the decision to be reviewed which you later withdrew in accordance with legal advice. The whole process to try to establish a replacement business at the first site you chose took some time. You have found a second site and are undertaking the development application process.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-190(2) | Income Tax Assessment Act 1997 subdivision 152-A

Reasons for decision: Summary: The small business roll-over allows you to defer the capital gain made from a 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. You can choose the roll-over even if you have not yet acquired a replacement asset. However CGT event J5 happens if, by the end of the replacement asset period, you do not acquire a suitable replacement asset which is an active asset. CGT event J6 happens if, by the end of the replacement asset period, the cost base (first, second and fourth elements only) of the replacement asset(s) you acquired is less than the capital gains disregarded under the roll-over provisions. The replacement asset period starts one year before, and ends 2 years after, the last CGT event in the income year for which you obtain the roll-over. Subsection 104-190(2) provides that the Commissioner may extend the replacement asset period. During this period you have actively pursued the set-up of replacement businesses. Site 1, which was expected to be operating within the replacement asset period, was rejected by the council. You have found a second site and are undertaking the development application process. For these reasons, to date you have been unable to acquire suitable replacement asset(s). In determining if the discretion would be exercised the Commissioner has considered the following factors: • evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension) • prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension) • unsettling of people, other than the Commissioner, or of established practices • fairness to people in like positions and the wider public interest • whether any mischief is involved, and • consequences of the decision. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow an extension of time.