Private ruling: Capital Gains Tax (CGT) - small business concessions - extension of time to acquire a replacement asset
Published: July 2011
Ruling period: 1 July 2008 to 30 June 2013
Date scheme commenced: 1 July 2008

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time period by a short period to allow you to acquire part of a replacement asset? | A1: Yes | Q2: Will the Commissioner exercise his discretion under subsection 104-190(2) of the ITAA 1997 to extend the time period by an additional few years to allow you to undertake improvements to the aforementioned assets as the remaining part of your replacement asset? | A2: Yes

Relevant facts and circumstances: You entered into a contract in the 20XX-XX financial year to sell your CGT asset and so made a gross capital gain. You state that you satisfied the basic conditions for applying the small business concessions as: · you satisfy the $5 million maximum net asset value test · you were carrying on a business · your CGT asset was active at the time the sale contract was signed. You applied the 50% small business active asset reduction and then applied the small business rollover exemption. You were required to acquire another active asset within two years of the sale. During this two year period you actively searched for a replacement CGT asset and provided documentation to support your investigations of over 20 assets, including the ones detailed below. You had entered into a contract to purchase one asset however this contract fell through due to issues relating to the vendor. An offer which was not successful was also made on another asset. You subsequently entered into a contract just outside the two year period to purchase associated assets. These assets and their subsequent improvements you nominate as your replacement asset. The total of the associated replacement assets before improvements exceeded half of the small business rollover exemption you had previously applied. You provided paperwork verifying this purchase which showed that you had experienced extensive negotiations with the vendor in relation to arriving at the terms of the contract. There are a number of improvements and renovations that are required to be made on this replacement asset. You have engaged some professionals to assess, report on and quote for the works required. You included a copy of their documents which you have accepted. These documents have been submitted to the appropriate bodies and you are currently awaiting their approval before any works can commence, which means the situation is out of your hands. You expect it will take some time for this to be approved. You request an extension of time in two parts in relation to the acquisition of the replacement asset of the CGT event - the first part is seeking an additional short period to cover the purchase of the associated assets and the second is seeking an additional few years for the improvements. If the extension of time is granted, you will then have acquired a replacement active asset and made capital improvements exceeding the full rollover exemption you had previously applied within the extended timeframe and so will have satisfied the conditions for the rollover concession.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-190(2).

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. | Detailed Reasoning - Commissioner's discretion - extension of time to acquire a replacement asset: Division 152 of the ITAA 1997 details small business relief from CGT by way of various concessions. In order to utilise these concessions, mandatory basic conditions must be satisfied for all of the concessions and additional conditions also need to be satisfied, depending on the concession(s) chosen. In order to apply the small business rollover concession, a replacement asset must be acquired within two years after the relevant CGT event. Subsection 104-190(2) of the ITAA 1997 explains that the Commissioner may extend the replacement asset period. The Commissioner takes into account a number of factors in determining whether to exercise discretion to extend the replacement asset period in order for a taxpayer to acquire a replacement asset. The Commissioner considers the following: · 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 · a consideration of the consequences. | Detailed Reasoning - Application to your circumstances: You sold the CGT asset in the 20XX-XX financial year and so made a gross capital gain. Therefore, you were required to acquire a replacement asset within two years. You advised that you were delayed in replacing your asset due to a lengthy period of unsuccessful but active searching for a new asset to purchase. You also provided documentation to verify this delay. Just outside the two year period you purchased assets which exceeded half of the small business rollover exemption you had previously applied. Therefore, you have requested an extension of time for a short period to cover the purchase of these assets as part of a replacement asset. You then engaged some professionals to assess, report on and quote for the works required. You included a copy of their documents which you have accepted. These documents have been submitted to the appropriate bodies and you are awaiting their approval before any works can commence, meaning the situation is out of your hands. You anticipate the approval process alone will take a considerable period. Therefore, you have requested an additional extension of time for a few years to allow you to complete improvements to the associated assets as the remaining part of your replacement asset. You advise that you satisfy the $5 million maximum net asset value test and your asset was active at the time it was sold. As you advised that you satisfy the basic conditions for relief, you have requested these extensions of time in order to satisfy the additional rollover conditions. With regard to the factors considered in determining if the discretion would be exercised: · you have provided an acceptable explanation for the period of extension required · there is no prejudice to the Commissioner · it is fair and equitable in the circumstances to provide such an extension. Therefore, the Commissioner will exercise his discretion under subsection 104-190(2) of the ITAA 1997 to grant both of the requested extensions.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.