Private ruling: CGT small business concessions
Date of advice: 6 August 2019
Published: October 2019
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

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 replacement asset period following the sale of the Property? | A1: Yes | Q2: Can an entity, other than the Trust, acquire a replacement asset to prevent capital gains tax (CGT) event J5 from occurring at the end of the replacement asset period? | A2: No

Relevant facts and circumstances: The Trust entered into a contract to the Property. Due to various special conditions, such as a development approval, settlement has been extended. The Trust will make a capital gain on the disposal of the Property. The Trust is a CGT small business entity. The Trust has operated a business on the Property since its acquisition. The Trust will elect to apply the CGT small business rollover to all or part of the capital gain made from the disposal of the Property. The Trust is presently seeking suitable business opportunities to purchase, however will not enter into any formal negotiations until the proceeds from the sale of the Property are received following settlement.

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-E

Reasons for decision: Summary: Where the relevant conditions are met, a taxpayer can choose the CGT small business rollover under Subdivision 152-E of the ITAA 1997 to defer all or part of a capital gain. Further CGT events will happen where the rollover is chosen and certain conditions are not met within the replacement asset period. The replacement asset period starts one year before and ends two years after the last CGT event that occurs in the income year for which you choose the roll over, or a longer period that the Commissioner allows. In this case, having considered the relevant factors, particularly the delayed settlement, the Commissioner considers it would be appropriate to extend the asset replacement. Section 104-197 of the ITAA 1997 deals with the consequences that arise if a replacement asset is not acquired by the end of the replacement asset period. Subsection 104-197(1) of the ITAA 1997 states that CGT event J5 will occur if 'you' have not acquired a replacement asset within the replacement asset period. In this instance, 'you' refers to the entity that chose the small business rollover. There are no provisions that allow the replacement asset to be acquired by any other entity. Accordingly, if a replacement asset is acquired by any entity other than the Trust, the rollover conditions will not be satisfied. This is the case even if the other entity is controlled by the same individuals.