Private ruling: CGT rollover relief
Date of advice: 27 June 2018
Published: September 2018
Ruling period: 1 July 2018 to 30 June 2019
Date scheme commenced: 29 June 2015

Ruling: Q1: Will the Commissioner exercise his discretion pursuant to subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time in which to spend some of the proceeds following the acquisition of the taxpayer’s asset in order to meet the eligibility requirements for a Subdivision 124-B roll-over? | A1: Yes. | Q2: If the taxpayer is successful in receiving an extension of time from the Commissioner in respect of question 1, will the Commissioner allow a further time until 30 June 2019 for the taxpayer to acquire a replacement asset? | A2: Yes.

Relevant facts and circumstances: The Trust (the taxpayer) is an Australian discretionary trust The Trust acquired a property to develop. Development applications were lodged with the local council to obtain approval to commercially develop the property. However, the applications were not granted. The taxpayer did not proceed with the development plans due to the impact of the GFC and the commercial viability of the project. The taxpayer received a notice from a State authority advising that the property was to be compulsorily acquired The taxpayer ultimately disposed of the property to the State authority by agreement. The taxpayer entered negotiations to acquire a replacement property soon after disposal of its property to the State authority. It is the intention of the taxpayer to acquire commercial land for investment purposes with the view of converting the sites to be commercially viable.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(2) | Income Tax Assessment Act 1997 subsection 104-10(3) | Income Tax Assessment Act 1997 subsection 124-75(1) | Income Tax Assessment Act 1997 paragraph 124-70(1)(c) | Income Tax Assessment Act 1997 paragraph 124-75(2)(a) | Income Tax Assessment Act 1997 paragraph 124-75(3)(b) | Income Tax Assessment Act 1997 paragraph 124-75(4) | Income Tax Assessment Act 1997 paragraph 124-75(5) | Income Tax Assessment Act 1997 paragraph 124-75(6)

Reasons for decision: Summary: The special circumstances warrant the Commissioner allowing an extension of time in acquiring a replacement CGT asset. | Detailed Reasoning - Detailed reasoning: Under subsection 104-10(1) of the ITAA 1997 a CGT event A1 happens if you dispose of an asset. Subsection 104-10(2) states that you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of the law. The timing of the event is when the contract is entered into for disposal pursuant to subsection 104-10(3) of the ITAA 1997. Under paragraph 124-70(1)(c) of the ITAA 1997 you may choose a replacement-asset roll-over in the event that you dispose of it to an entity in circumstances meeting all of these conditions: ● the disposal takes place after a notice was served on you by or on behalf of the entity; ● the notice invited you to negotiate with the entity with a view to the entity acquiring the asset by agreement; ● the notice informed you that if the negotiations were unsuccessful, the asset would be compulsorily acquired by the entity; and ● the compulsory acquisition would have been under a power of compulsory acquisition conferred by a law covered under subsection (1A). Paragraph 124-75(3)(b) of the ITAA 1997 states that when money is received in the event of a replacement-asset roll-over, at least some of the expenditure must be incurred no later than one year. Alternatively, within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens. Taxation Determination 2000/40 describes what are ‘special circumstances’ for the purposes of subsection 124-75(3) of the ITAA 1997. Under this subsection the expression ‘special circumstances’ by nature is incapable of a precise or exhaustive definition. What are ‘special circumstances’ depends on the facts of each particular case. Additional requirements that need to be satisfied where money is received are: ● where the original asset was used in your business just before the CGT event, the replacement asset must be used in the business of for the same or similar purpose for a reasonable time after acquisition (subsection 124-75(4) of the ITAA 1997) ● the other asset cannot be part of trading stock just after acquisition nor a depreciating asset with its decline in value worked out in a particular way (subsection 124-75(5) of the ITAA 1997); and ● the other asset cannot become a registered emissions unit after acquisition (subsection 124-75(6) of the ITAA 1997). The Trustee for the Trust (the taxpayer) entered into a contract to dispose of their commercial property, a post CGT asset in 2015. Consequently, CGT event A1 occurred. The timing of the event is the date the contract was signed. The disposal of the property meets all of the requirements of paragraph 124-70(c) of the ITAA 1997. The Commissioner concludes that the special circumstances in this case warrant an extension of the time for the expenditure to be incurred on a replacement asset. | Summary: The special circumstances warrant the Commissioner allowing an extension of time in acquiring a replacement CGT asset to 30 June 2019. | Detailed Reasoning - Detailed reasoning: We conclude that the special circumstances presented warrant an extension of the time for the expenditure to be incurred on a replacement asset to 30 June 2019. It should be noted that while special circumstances exist that warrant an extension of the time for the expenditure, to access the rollover, the taxpayer will need to satisfy the requirements in Subdivision 124-B of the ITAA 1997.

ATO view documents: Taxation determination TD 2000/40 Income tax: capital gains: what are ‘special circumstances’ for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997?