Private ruling: Small business concessions
Date of advice: 19 August 2015
Published: August 2015
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner, pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997), extend the time limit for the replacement asset to be acquired? | A1: Yes.

Relevant facts and circumstances: You sold the business during the relevant financial year, which triggered a capital gain on the sale of the business. The business met the requirement of a small business and is eligible to the small business CGT concessions. The small business rollover conditions were satisfied. The two year period to acquire a replacement asset to defer the CGT ended during the 20XX financial year, which has passed. The Commissioner exercised his discretion and granted you an extension to acquire a replacement asset for four months. During the period of the extension of time, the ATO commenced a capital gains tax small business concessions review. The review took approximately eight months. You did not acquire a replacement asset during this time because if the audit had resulted in your entity not being eligible to apply the small business capital gains tax concessions, then you would not acquire a new asset. Your solicitors are currently going through your options. You would prefer to purchase a development and your solicitors are currently investigating if it will satisfy the conditions necessary for the rollover. If not, you will purchase another business. Once you have decided on an asset, you will conduct a due diligence. You expect to have acquired a new asset by 30 June 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-185(1). | Income Tax Assessment Act 1997 subsection 104-190(2). | Income Tax Assessment Act 1997 Subdivision 152-A.

Reasons for decision: Summary: The small business roll-over allows you to defer the capital gain made from a capital gains tax (CGT) event if you acquire one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain relief are set out in Subdivision 152-A of the ITAA 1997. For you to obtain a roll-over, subsection 104-185(1) of the ITAA 1997 requires you to acquire a replacement asset, and that it be an active asset of yours, within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) states that the Commissioner may exercise his discretion to extend those time limits. You disposed of your business during the relevant financial year. The two year limit in which to find a replacement consequently expired during the subsequent financial year. You received an extension for approximately four months to acquire a replacement asset. During the period of extension, an ATO review commenced into whether or not your entity was eligible to apply the small business concessions to the initial CGT event. The acquisition of a replacement asset was dependant on the result of the review. Therefore you did not go forward with your planned acquisition. You are waiting on your solicitors to gather information about your replacement acquisition. You will then conduct a due diligence. You will have purchased a replacement asset by 30 June 20XX. In determining if the discretion would be exercised the Commissioner has considered the following factors: • evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension) • prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension) • unsettling of people, other than the Commissioner, or of established practices • fairness to people in like positions and the wider public interest • whether any mischief is involved, and • consequences of the decision. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow an extension of time until 30 June 20XX.