Private ruling: Extension for roll-over relief asset replacement
Published: March 2012
Ruling period: Financial year ended 30 June 2013
Date scheme commenced: Financial year ended 30 June 2011

Ruling: Q1: Will the Commissioner exercise his discretion in accordance with paragraph 40-365(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow the taxpayer a further period in which to incur expenditure on replacement asset from 1 July 2012 to 30 June 2013? | A1: Yes | Q2: Will the Commissioner exercise his discretion in accordance with subsection 124-75(3) of the ITAA 1997 to allow the taxpayer a further period in which to incur expenditure on the replacement asset from 1 July 2012 to 30 June 2013? | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. In the 2011 year a fire destroyed plant, equipment and buildings owned by the taxpayer. The taxpayer elected depreciating asset roll-over relief upon lodgment of its income tax return for the financial year ended 30 June 2011. The assets destroyed in the fire are covered by insurance policies. The building is heritage listed. However, due to the scale of the fire, subsequent construction to rebuild and replace the assets destroyed in the fire will not be finalised within the 12 month timeframe specified in the election made. It is anticipated by the taxpayer that the completion of the rebuild and purchase of replacement assets will be completed by 30 June 2013. The taxpayer has advised that the subsequent construction required to rebuild and replace the assets destroyed in the fire will not be finalised within the 12 month timeframe specified in the election made due to the following reasons: · the extent of damage to the assets; · the taxpayer is yet to receive any substantial proceeds at this point in time despite a concerted effort to settle the claim within 12 months; and · the restoration of the building commenced as soon as practicable once the building was cleared and construction was approved however, the building is heritage listed and as such requires that it is rebuilt in accordance with heritage regulations and consistent with the adjoining building that was not destroyed in the fire.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 40-365 | Income Tax Assessment Act 1997 Subdivision 124-B

Reasons for decision: Summary: The Commissioner will exercise his discretion and grant an extension of time for a further 12 months from 1 July 2012 to 30 June 2013 in relation to the replacement asset roll-over relief election made for the financial year ended 30 June 2011. | Detailed Reasoning - Detailed reasoning: Section 40-365 of the ITAA 1997 allows a taxpayer to choose whether or not to include a balancing adjustment amount in their assessable income where they cease to hold a depreciating asset because it was destroyed. The taxpayer can choose to use some or all of the amount that would otherwise be a balancing adjustment as a reduction in the cost and/or opening adjustable value of one or more replacement assets. The cost of the replacement asset is reduced by the otherwise assessable amount. In accordance with paragraph 40-365(3)(b) of the ITAA 1997 this exclusion can only be made where they incur the expenditure on the replacement assets no later than one year, or within a further period which the Commissioner allows, after the end of the income year in which the balancing adjustment occurred. As a fire has destroyed the buildings owned by the taxpayer, including depreciable plant and equipment the taxpayer can choose to apply section 40-365 of the ITAA 1997 for the involuntary disposal of the depreciating assets. In the Explanatory Memorandum for the New Business Tax System (Capital Allowances) Bill 2001 it states at paragraph 3.82: Examples of when the Commissioner may allow a further period under paragraph 40-365(3)(b) include: · in the event of a destruction of large infrastructure assets it will be likely to take than more than 12 months to rebuild those assets, and there are no suitable corresponding assets acquired within 12 months before or after the destruction; or · in the event of the replacement asset being acquired from overseas it will be likely to take more than 12 months to deliver such assets, and there are no suitable corresponding assets acquired within 12 months before or after the destruction. A further example of where the Commissioner may agree to extend the time limit is provided in 'The Guide to Depreciating Assets 2011' where it states that if it is unlikely that the insurance claims for the original asset will be settled within the required time even though you have taken all reasonable steps to have the insurance claim settled an extension of time may be granted. As the restoration of the business premises will take more than 12 months to complete and unable to be used by the taxpayer as at 30 June 2012 (which is one year after the end of the income year in which the balancing adjustment event occurred) the Commissioner will exercise his discretion to grant a further period of time under paragraph 40-365(3)(b) of the ITAA 1997 in order to acquire replacement assets. | Summary: The Commissioner will exercise his discretion and grant an extension of time for a further 12 months from 1 July 2012 to 30 June 2013 in relation to the CGT asset roll-over relief election made for the financial year ended 30 June 2011. | Detailed Reasoning - Detailed reasoning: Section 124-70 of the ITAA 1997 allows a taxpayer to choose a roll-over if a CGT asset (the original asset ) you own, or part of it, is lost or destroyed. If you receive money for the CGT event then further conditions are imposed by section 124-75 of the ITAA 1997. Subsection 124-75(3) of the ITAA requires you to incur expenditure in acquiring a replacement CGT asset- or, if part of the original asset was lost or destroyed, requires you incur capital expenditure in repairing or restoring it- within a defined period of time 'or within such further time as the Commissioner allows in special circumstances'. Taxation Determination TD 2000/40 provides some examples of fact situations in which the Commissioner would, or would, accept that special circumstances exist, which includes a property destroyed by fire. In this case, the taxpayer has advised that due to the scale of the fire, the subsequent construction required to rebuild and replace the assets destroyed in the fire will not be finalised within the 12 month timeframe specified in the election made due to the following reasons: · the extent of damage to the assets; · the taxpayer is yet to receive any substantial proceeds at this point in time despite a concerted effort to settle the claim within twelve months; and · the restoration of the building commenced as soon as practicable once the building was cleared and construction was approved however, the building is heritage listed and as such requires that it is rebuilt in accordance with heritage regulations and consistent with the adjoining building that was not destroyed in the fire. After consideration of the taxpayer's special circumstances and the explanation of the delay, the Commissioner will exercise his discretion under subsection 124-75(3) of the ITAA 1997 to extend the period within which the expenditure must be incurred by the taxpayer from 1 July 2012 to 30 June 2013.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.