Private ruling: Capital gains tax – extension of time to obtain replacement asset
Date of advice: 10 May 2018
Published: July 2018
Ruling period: Year ending 30 June 20XX.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time required to obtain a replacement asset for a compulsorily acquired asset? | A1: Yes.

Relevant facts and circumstances: Entity A owned a property (Property Z). Entity A was issued with a proposed acquisition notice for Property Z pursuant to the relevant legislation. Property Z was subsequently compulsorily acquired. Entity A and along with other entities commenced proceedings in the relevant Court in dispute of the market value compensation to be received for the compulsory acquisition of Property Z. A settlement process eventuated, with an amount of compensation being agreed to for the compulsory acquisition of Property Z. The final balance of settlement funds was not received until more than one year after Property Z was acquired. Entity A has been seeking a replacement asset that has the same or similar characteristics to Property Z since its compulsory acquisition. Entity A acquired a property as a replacement asset. The acquisition of this property did not fully expend the proceeds received for the compulsory acquisition. Since the acquisition of Property Y, Entity A has continued to investigate a number of properties to find a suitable replacement with similar characteristics to Property Z to utilise the remaining compulsory acquisition proceeds. Entity A has made unsuccessful offers or been outbid on these properties, which have been sold above market expectations.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 124-B. | Income Tax Assessment Act 1997 subsection 124-70. | Income Tax Assessment Act 1997 subsection 124-75(3).

Reasons for decision: Summary: Subdivision 124-B of the ITAA 1997 explains the circumstances when a rollover is available for an asset that is compulsorily acquired, lost or destroyed. Under subsection 124-70 (1) of the ITAA 1997 you may be entitled to choose a rollover if a CGT asset that you own is compulsorily acquired by an Australian government agency. If you receive money as a result of the compulsory acquisition, you can only choose a rollover if you incur expenditure in acquiring another CGT asset. Under subsection 124-75(3) of the ITAA 1997, you must incur at least some of the expenditure in the acquisition of a replacement asset no earlier than one year before the event happens or, within one year after the end of the income year in which the event happens. Taxation Determination TD 2000/41 Income tax: capital gains: are the two requirements in subsection 124-75(4) of the Income Tax Assessment Act 1997 for a CGT asset acquired to replace an original asset alternative and mutually exclusive requirements? provides at paragraph 13: There is no restriction on the number of CGT assets which may be treated as replacement assets for an original CGT asset in the replacement-asset roll-over provisions in Subdivision 124-B provided that they each satisfy the relevant requirements of that Subdivision. Taxation Determination TD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997? discusses the types of situation envisaged as constituting special circumstances for the purposes of subsection 124-75(3)(b). Having considered that relevant facts, the Commissioner will apply his discretion under subsection 124-75(3) and allow a reasonable extension to the time limit. The Commissioner will extend the time limit to acquire the replacement asset.