Private ruling: Capital gains tax – small business concessions - extension of replacement asset period
Date of advice: 3 August 2017
Published: November 2017
Ruling period: Year ending 30 June 2018.
Date scheme commenced: 2015.

Ruling: Q1: Will the Commissioner exercise 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? | A1: Yes.

Relevant facts and circumstances: The company operated a specific business for a number of years before the business was sold. The company applied the small business exemption rollover with the intention of purchasing a replacement business within two years. Since the sale of the business, the company has looked at various other business opportunities. The company had been in negotiations to acquire another business for a number of months; however, the company withdrew from the purchase as a result of the vendor withholding information in relation to lease arrangements. More recently, the company has found an opportunity to acquire a different business. Subsequently, a deposit has been paid in relation to the acquisition of this business and it is expected that settlement will occur shortly after the end of the replacement asset period. It is assumed that the basic conditions in section 152-10 of the ITAA 1997 were met at the time of the sale of the business.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 152-A | Income Tax Assessment Act 1997 Subdivision 152-E | Income Tax Assessment Act 1997 Subsection 104-185(1) | 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

Reasons for decision: Summary: The rules covering the small business roll-over are contained in Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997). The small business roll-over allows you to defer all or part of a capital gain from a capital gains tax (CGT) event happening to an active asset. CGT event J5 happens if you choose a small business roll-over under Subdivision 152E of the ITAA 1997 and you have not acquired a replacement asset by the end of the replacement asset period. The replacement asset period is the period starting one year before and ending two years after the last CGT event in the income year for which you obtain the roll-over. The replacement asset period may be extended or modified by the Commissioner. In determining whether to allow an extended asset replacement period the Commissioner considers the following factors: ● whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension ● whether there is any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension) ● whether there is any unsettling of people, other than the Commissioner, or of established practices ● the need to ensure fairness to people in like positions and the wider public interest ● whether there is mischief involved, and ● the consequences of the decision. You have made attempts to acquire a replacement asset (and are currently in the process of purchasing a business). Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions. There is also no evidence of any mischief involved. Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner will exercise his discretion to extend the replacement asset period. | Detailed Reasoning - Additional information: This ruling has not considered your eligibility for the small business rollover concession. You should ensure that you satisfy the basic conditions and the other conditions relevant for the concession. More information can be found at C apital gains tax concessions for small business , which is available on our website www.ato.gov.au .