Private ruling: Capital gains tax - small business concessions, rollover, replacement asset - extension of time
Date of advice: 9 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2013

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

Relevant facts and circumstances: The taxpayer sold an active asset as described under subdivision of 152-A of the ITAA 1997 in the relevant financial year. The taxpayer applied the small business rollover to the capital gain made by the sale of the asset. The taxpayer has since been looking continuously for a suitable replacement asset. The taxpayer acquired a replacement asset via a contract within the relevant two year period. Negotiations with the vendor commenced the subsequent financial year. The purchase price per the contract is $X. The contract states that the consideration includes both the land and the business being conducted on the land. Settlement cannot take place until the plan of subdivision is registered. The latest advice the taxpayer has received from their lawyer is a possible completion date early in the 2016-17 financial year. However this is indicative only and no confirmed settlement date has been established. In in the 2015-16 financial year the company was required to pay stamp duty in relation to the contract. The taxpayer upon settlement of the contract will take possession of the asset and conduct the business on the said asset.

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

Reasons for decision: Summary: Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997) allows a small business to 'rollover', that is to defer, all or part of a capital gain made from a capital gains tax (CGT) event happening to an active asset. A condition of choosing the rollover is that you must replace the active asset or incurred expenditure on a capital improvement to an existing asset by the end of the replacement asset period. This period starts one year before and ends two years after the relevant CGT event. However, the Commissioner may extend the replacement asset period in certain circumstances (subsection 104-190(2) of the 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, and • a consideration of the consequences. In your circumstances, the taxpayer rolled over capital gains using the small business rollover during the relevant financial year. In the subsequent financial year, the taxpayer entered into negotiations with the vendor to purchase the asset. In the 2015-16 financial year, within the relevant two year period, the company entered into a purchase contract with the vendor. The purchase price per the contract included the land, and the business currently being undertaken on the land. However settlement of the property cannot take place until the plan of subdivision is registered. The latest advice the taxpayer has received from their lawyer is a possible settlement date early in the 2016-17 financial year. However no confirmed settlement date has been established. Once settlement has occurred the taxpayer will take possession of the land and conduct the business on the property. Therefore as: • the negotiation process commenced within the relevant period for small business rollover, • the contract for the replacement asset was entered into within the relevant two year period and • the delays in settlement process are beyond the control of the company, the Commissioner is able to apply his discretion under subsection 104-190(2) of the ITAA 1997 and allow an extension of time until settlement of the contract has taken place.