Private ruling: Capital Gains tax (CGT) Small Business replacement asset rollover
Date of advice: 20 June 2017
Published: October 2017
Ruling period: 1 July 20XX to 1 September 20XX
Date scheme commenced: 1 July 20XX

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 September 20XX? | A1: Yes

Relevant facts and circumstances: You received a capital gain during the 20XX income year and you rolled over a capital gain amount. During the subsequent 2 year period, you examined numerous replacement businesses as potential purchases, however all were unsuitable. You have purchased some replacement assets, however an amount of uncrystallised gains is still remaining. Further to this, the ATO reviewed the transaction during the 20XX income year, thus delaying any action you could take during this period until the matter was completed. You originally applied for an extension of time for the 20XX and 20XX income years which was approved by the Commissioner. Further to this, you applied for another private ruling regarding the extension of time for the subsequent income year which was approved by the Commissioner. An opportunity became available during the 20XX income year for you to acquire shares in a business. The vendor has lodged a Development Application but the council has denied the application. There have been delays and you decided not to purchase the shares of the business as the matter may take some time to eventuate. You have investigated another opportunity to purchase a similar business, and currently have a draft contract in place with the vendor You are seeking a further extension of the period in which the small business rollover can be utilised until 30 September 20XX. The extension of time will allow you to ensure that you meet the replacement asset deadline in an event of any unforeseen circumstances in finalising the contract.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-190(2), | Income Tax Assessment Act 1997 section 104-197, | Income Tax Assessment Act 1997 section 104-198 and | Income Tax Assessment Act 1997 subdivision 152-A.

Reasons for decision: Summary: The Commissioner will 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 September 20XX | Detailed Reasoning - Detailed reasoning: 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. | Detailed Reasoning - Your circumstances:: You examined numerous replacement businesses as potential purchases, however all were unsuitable. The ATO reviewed your CGT transaction during the 20XX income year delaying your ability to acquire a replacement asset. In 20XX income year, an opportunity became available for you to acquire shares in a business. However, the company’s Development Application was denied by Council and currently the matter lies with another government agency. You decided not to purchase the shares in the business as the matter may take some time to eventuate. You have investigated another opportunity to purchase a similar business, and currently has a draft contract in place with the vendor. The extension of time will allow you to ensure that you meet the replacement asset deadline in an event of any unforeseen circumstances in finalising the contract. 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 until 30 September 20XX.