Private ruling: Capital Gains Tax Small Business replacement asset rollover
Date of advice: 25 May 2016
Published: July 2016
Ruling period: 1 July 2016 to 30 June 2017
Date scheme commenced: 1 July 2014

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 June 2017? | A1: Yes

Relevant facts and circumstances: You received a capital gain during the relevant 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 2015 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 2015 and 2016 income years which was approved by the Commissioner. An opportunity became available during the 2016 income year for you to acquire shares in a business. The vendor has lodged a Development Application (DA) but the council has, as yet not processed the DA. You are seeking a further extension of the period in which the small business rollover can be utilised until 30 June 2017. The extension of time will allow you to perform adequate due diligence, and to ensure the required active asset tests are satisfied in relation to these shares. Due to an illness in the family you are also looking into the possibility of an alternative venture.

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. | 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 June 2017? | 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 2015 income year delaying your ability to acquire a replacement asset. You are proposing to acquire shares in a company which is seeking approval for a development and once approved, construction will take four to six months, after which time the company can commence trading. A Development Application has been lodged with Council, but has not been processed as yet. Because of this delay you will need some additional time to carry out due diligence, and to ensure the required active asset tests are satisfied in relation to these shares. Due to an illness in the family you are also looking into the possibility of an alternative venture. 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 June 2017.