Private ruling: Capital gains tax and the small business roll-over
Published: May 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2014.

Ruling: Q1: Will the Commissioner extend the time limit for the replacement asset to be acquired under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) ? | A1: Yes.

Relevant facts and circumstances: You owned an active business asset (the property). You sold a portion of the property in the 20XX-YY financial year. Contracts were exchanged early in the 20XX-YY financial year and settlement occurred on three months later. You made a taxable gain from the sale, and the gain was rolled over in your Income Tax Return (ITR) under the Small Business Concessions (SBC). The sale was a result of the Roads & Maritime Services (RMS) compulsorily acquiring portion of the property. At the time that RMS acquired part of the property, you requested that RMS acquire the whole property since the acquisition took enough land and water resources, including the permanent water supply, to make the business marginal. However RMS refused the request. You decided to sell the remainder of the property and buy elsewhere. You listed the remainder of the property on the market in the 20YY-ZZ financial year. You intended to roll the existing and future capital gains from the sale of the property into the cost base of the replacement property under the SBC roll-over provisions. Before the property could be sold, and a replacement property purchased, you suffered a life-threatening medical emergency in the 20YY-ZZ financial year. It was expected that you would not survive; however you had a better than anticipated recovery and returned home in the 2013-14 financial year - albeit not fully recovered. You had a remarkable recovery, but are still unable to work and you require supervision at all times. Your specialist stated that the full extent of your recovery will not be known for three to five years after the medical emergency occurred. The property listing has never been formerly removed; however after you suffered the medical emergency the property was not actively marketed. You are still hoping to sell the property and purchase a more suitable replacement.

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 subdivision 152-A.

Reasons for decision: Summary: The small business roll-over allows you to defer the capital gain made from a capital gains tax (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 the asset. 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. You compulsorily disposed of a portion of your property in the 20XX-YY financial year. You listed the remainder of the property on the market in the 20YY-ZZ financial year. You unfortunately suffered a life-threatening medical emergency soon after which suspended your ability to deal with the sale of the remainder of the property in order to find a replacement property. The listing has never been formerly removed; however after your medical emergency the property was not actively marketed. For this reason, to date you have been unable to sell the remainder of your property and find a suitable replacement asset. In determining if the discretion would be exercised the Commissioner has considered the following factors: n 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) n 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) n unsettling of people, other than the Commissioner, or of established practices n fairness to people in like positions and the wider public interest n whether any mischief is involved, and n 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.