Private ruling: Small business replacement asset concessions
Published: September 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion under section 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit under subsection 104-185(1) of the ITAA 1997 for the replacement asset to be acquired, to the date when the replacement asset was purchased? | A1: Yes.

Relevant facts and circumstances: You run a viable enterprise. You sold an active asset subsequent to purchasing a replacement active asset. The purchase of the replacement active asset presented an opportunity to expand your enterprise and secure the long term viability of the primary production property. You purchased the replacement asset hoping that the purchase of this asset would be within the prescribed rollover period. However, the sale of the active asset was not achieved within the one year prior and two years post time frame set out in section 104-185 of the ITAA 1997. Your asset is more difficult to transact a sale upon than other assets, particularly during the time period in your circumstance. Prior to the purchase of the replacement asset, you embarked on an extensive advertising and marketing program to sell the existing asset. The existing asset was actively marketed at a realistic price. The asset was passed in at auction and then listed with multiple agents specialising in the sale of the asset. The capital gain derived from the sale of the existing asset satisfied the basic conditions and you are able to utilise the concession available under section 104-185 and section 104-190 of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) section 104-185 | Income Tax Assessment Act 1997 (ITAA 1997) section 104-190

Reasons for decision: Summary: The small business rollover 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. For you to obtain a rollover, subsection 104-185(1) of the ITAA 1997 requires you to acquire a replacement asset within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) of the ITAA 1997 states that the Commissioner may exercise his discretion to extend those time limits. In determining if the discretion would be exercised the Commissioner has considered the following factors: • 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; and • consideration of the consequences. These factors as they relate to you are discussed below. The asset is more difficult to transact a sale upon than other assets and will often take a substantial amount of time to sell. At the time of your particular circumstance, the length of time that passed before a sale was even more significant. Accordingly, you made genuine attempts to sell your existing asset well before any purchase of a new asset, having embarked on an extensive advertising and marketing program. When the possibility to acquire a new asset arose you saw it presented an opportunity to expand your enterprise and secure its long term viability. You subsequently purchased this asset prior to the sale of your existing asset, genuinely hoping that the purchase of this asset would be within the prescribed rollover period. Having passed in at auction, the asset was listed with several agents at a commercially realistic price to induce a sale. However, the sale of your existing asset was not achieved within the time frame set out in section 104-185 of the ITAA 1997. A significant time passed before the asset was sold, much longer than the prescribed 12 month prior to the sale period. The time limit to acquire the replacement asset commenced after you purchased the new asset, as it was purchased more than one year prior to the sale of your existing CGT asset. Having considered the relevant facts, you appear to have made a genuine attempt to comply with the requirements on subsection 104-185(1). Accordingly, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow a reasonable extension to the time limit. In view of this, the time limit that would require the replacement asset to be purchased no sooner than 12 months prior to the sale of your asset will be extended in accordance with your request.