Private ruling: Capital gains tax concessions for small business
Date of advice: 17 December 2015
Published: February 2016
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 to extend the time for the taxpayer to acquire a replacement asset? | A1: Yes.

Relevant facts and circumstances: The taxpayer is requesting an extension of time for a further 2 years in relation to the application of the small business rollover concession. The taxpayer stated the following: • A capital gain was included in their 20XX income tax return; • The small business CGT concessions applied comprising an active asset reduction and a small business rollover concession (based on the assumption that a two year frame was allowed for the acquisition of a replacement asset); • The capital gain arose on dd/mm/yyyy. The taxpayer provided a copy of the following documentation: • The Sales Advice and Confirmation of Purchase; • The Letter of Offer from the Bank for the loan required to purchase the business. The taxpayer actively sought to purchase and operate this business and had acquired the relevant funding required, however, this venture can no longer proceed as it has been withdrawn from sale; The taxpayer is actively seeking other business ventures in order to comply with the original small business roll-over concession, and expects to do so within the additional time frame.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Subsection 104-185(1) | Income Tax Assessment Act 1997 Subsection 104-190(2) | Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Subdivision 152-C | Income Tax Assessment Act 1997 Section 152-410

Reasons for decision: Summary: If a taxpayer makes a capital gain from the disposal of an asset and satisfies the basic conditions for capital gains tax ( CGT ) small business relief in Subdivision 152-A of the ITAA 1997, the taxpayer may choose to obtain a small business roll-over under Subdivision 152-C of the ITAA 1997. The choice to obtain a small business roll-over may be made even if a replacement asset has not yet been acquired. However, as noted in section 152-410 of the ITAA 1997: • if a replacement asset is not acquired by the end of the replacement asset period, CGT event J5 will happen and the capital gain will become assessable; • if by the end of the replacement asset period, the cost of the replacement asset or the amount of fourth element expenditure incurred (or both) is less than the amount of the capital gain that was disregarded, CGT event J6 will happen. The replacement asset period is specified in subsection 104-185(1) of the ITAA 1997 to start one year before and end two years after the last CGT event in the income year for which the roll-over is obtained. The Commissioner has the discretion, pursuant to subsection 104-190(2) of the ITAA 1997, to extend the replacement asset period. In determining whether the discretion will be exercised the Commissioner has considered the following factors: • 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; • 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; • the 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. In this case, the capital gain arose on dd/mm/yyyy and the taxpayer elected to apply the small business active asset reduction pursuant to subdivision 152-C. The replacement asset period ended in mm/yyyy. As the taxpayer did not acquire a replacement asset before the end of the replacement asset period, the taxpayer has requested that the Commissioner exercise the discretion in subsection 104-190(2) of the ITAA 1997 and extend the replacement asset period. The taxpayer stated the following in support of their request: • they intended on acquiring the business in 20XX and received a letter of offer from the Bank for the loan funding required; • they actively sought to purchase and operate the business, however, this acquisition did not proceed due to the business being withdrawn from sale; • it was always their intention to replace the asset. Having regard to the relevant factors above and the specific circumstances of the taxpayer's case, it is considered reasonable for the Commissioner to exercise the discretion in subsection 104-190(2) of the ITAA 1997 and extend the replacement asset period to dd/mm/yyyy.