Private ruling: Extension of time to acquire a replacement asset
Published: March 2013
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

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? | A1: Yes

Relevant facts and circumstances: You carried on a business in partnership with each other and other partners. You sold your interest in the property in the partnership during the 2010-11 financial year as a consequence of the other partners deciding to retire. The property was too large for you to run on your own and you were not in the position to be able to purchase the remaining interest in the property. You elected to use the small business rollover to defer the capital gains you made. Following the sale of your partnership interests, you developed a business plan for the establishment of a new business. In the two years following: · You established a business in the trust. · The trust acquired plant and equipment to run the business. It is intended that the trust will lease the property that you intend to acquire as a replacement asset for use in the business. In the 2011-12 financial year you entered into negotiations in respect of acquiring the property that the trust currently runs the business from. These negotiations were initially agreed upon. A contract for purchase was prepared at your expense. Prior to signing the contract, the vendor changed his/her mind as he/she did not want to sell for sentimental reasons. Being unable to secure the land, you entered into lease. The vendor advised you that he/she would sell the land to you within a defined period of time. You advised the vendor of your requirement to acquire the land prior to the completion of the asset replacement period, and the vendor assured you that he/she would conclude the sale to you prior to this date. Given that you were of the understanding that the sale would proceed, you have invested significant amounts to improve and develop the property. Recently, you became aware that there was the potential that the sale would not go ahead in the required timeframe. You have continued to negotiate with the vendor but he/she has advised you that he/she wants to hold the property for an additional period of time. Since becoming aware that the sale may not proceed, you have researched the property market to see if there was an alternative replacement property to purchase. However, there is a lack of listings within the same locality that suit your requirements.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 104-185(1)(a) | Income Tax Assessment Act 1997 subsection 104-190(2)

Reasons for decision: Summary: In order to satisfy the rollover conditions for the small business rollover, a replacement asset must be acquired within two years following the relevant CGT event. However the Commissioner may extend the replacement asset period in certain circumstances (subsection 104-190(2) of the ITAA 1997). The relevant factors in determining whether to extend the replacement asset period are: · 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 · a consideration of the consequences. In your case, you disposed of your partnership interests during the 2010-11 financial year and chose to apply the small business rollover. You had come to an arrangement that you would be able to purchase the land used by the trust's business prior to the end of the asset replacement period. Based on this agreement, you invested a significant amount to develop and improve the land. For reasons beyond your control, the vendor decided to delay the sale of the property for a further period. This has prevented you from acquiring the property within the two year replacement period. Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner will apply his discretion and extend the asset replacement period.