Private ruling: Capital gains tax
Date of advice: 18 August 2021
Published: October 2021
Ruling period: Year ended DD MM YYYY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Will the Commissioner exercise discretion under section 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period until DD MM YYYY? | A1: Yes. Section 124-75(3)(b) of the ITAA 1997 requires you to incur expenditure in acquiring a replacement CGT asset no later than one year after the CGT event or within such further time as the Commissioner allows in special circumstances. Based on the facts and circumstances of your case, and the guidance provided in 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?, the Commissioner will exercise the discretion to allow an extension of time until DD MM YYYY.

Relevant facts and circumstances: A trust and an individual (the Owners) acquired a property (the Land). The Owners are Australian Residents for Tax purposes. A Third Party issued the Owners a Taking Order that the Land was to be compulsorily acquired. The Taking Order was registered, and the Third Party became the registered owner of the Land. The Owners submitted a claim to the Third Party for compensation. The Third Party formally responded to the Owners with an offer of compensation. The Owners rejected the Third Party's' offer of compensation based on the substantial difference between the Owners' submission and the Third Party's formal offer. Pending legal proceedings by the Owners in relation to the amount of compensation, the Third Party offered the Owners an advance payment. The Owners agreed to the advance payment to ensure interest would be payable on the payment. The Owners and the Third Party attempted to negotiate amicable terms for the discharge of the advance payment. The Owners and the Third Party could not reach an agreement and the Third Party deposited the advance payment with the Supreme Court of X (the Supreme Court) for holding until the matter is resolved. The Owners commenced an application to the Supreme Court to retrieve the advance payment. The Owners received the advance payment. The Owners applied for a private ruling requesting an extension of the replacement asset period which was granted until DD MM YYYY (Authorisation Number: 123). The Owners and the Third Party continued to negotiate to have the balance of compensation paid (final compensation amount). As the final compensation amount, payable to the Owners had not been agreed between the parties, the Third Party offered the Owners a sum as a further Advanced Payment plus interest. The Owners accepted the additional Advanced Payment. However, they reserved their right to pursue the Third Party for the balance of funds (final compensation amount) due, in addition to outstanding interest payments. The Owners received the further Advanced Payment plus interest. The Owners continued to pursue interest payments due on the first Advanced Payment, calculated from the start date of DD MM YYYY to the end date of DD MM YYYY. The Third Party rejected the Owners claim for Interest Due because they disagreed with the end date. The Third Party's offer was based on an end date of DD MM YYYY. The Owners accepted the PTA's offer as an Advanced Payment on Interest due. While they accepted the Third Party's offer the Owners reserved their right to pursue the PTA for the balance due on Interest due. The Owners remained in dispute with the Third Party regarding the final compensation amount. During this period, the Third Party rejected Owners' claim and made a counteroffer (for final compensation amount) which the Owners accepted. The Owners received the final compensation amount from the Third Party. The Owners searched for a suitable replacement asset but was unsuccessful. The Owners continued to search for a suitable replacement asset however experienced difficulty due to the economic and social impact of COVID-19, specifically the decline of the acquisition market, travel restrictions and forced lockdowns.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 124-75(3)(b)