Private ruling: CGT – small business concessions – rollover – replacement asset period
Date of advice: 20 July 2017
Published: November 2017
Ruling period: Income year ending 30 June 2017; and | Income year ending 30 June 2018.
Date scheme commenced: DDMMYY

Ruling: Q1: Will the Commissioner exercise his discretion under section 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 and your spouse were partners in business (the Business). After 20 September 1985, you and your spouse entered into a contract for the sale of the Business, with settlement occurring a number of months later. You and your spouse made a capital gain on the disposal of the Business. You utilised the small business rollover exemption under subdivision 152-E of the ITAA 1997 when lodging your return for the year ended 30 June 2016, with the intention of acquiring a replacement asset within the two year period. A number of months after the settlement on the sale of the Business had occurred your spouse was involved in an accident which required them to be admitted into hospital and to undergo a surgical procedure. Following your spouse’s discharge from hospital they had been bedridden for a period of time. During the following months your spouse had limited capacity for physical activities and had undergone months of rehabilitation and physiotherapy. During your spouse’s recovery you had taken care of your spouse in addition to taking on full time employment to keep income coming in, plus the sole caring and transporting of your children. Up to the present time your spouse needs to moderate their physical activities due to their injuries. A number of months after their accident, your spouse commenced working on research and development of your next business activity during their recovery in preparation to undertake the activities required to launch your new business. You expect the new business venture to commence shortly and have implemented some components of the new business venture. You anticipate that you will incur numerous expenses in relation to the new business adventure over a number of months. Assumption This private ruling has been provided on the assumption that you meet the basic conditions for the Capital gains tax small business concessions contained in Subdivision 152-A of the ITAA 1997, and any other conditions relevant for this rollover to apply under Subdivision 152-E of the ITAA 1997.

Relevant legislative provisions: Income Tax assessment Act 1997 paragraph 104-185(1)(a) | Income Tax assessment Act 1997 subsection 104-190(2) | Income Tax assessment Act 1997 subsection 104-197(1) | Income Tax assessment Act 1997 subsection 104-197(5) | Income Tax assessment Act 1997 Subdivision 152-E

Reasons for decision: Summary: The rules covering the small business rollover are contained in Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997). The small business rollover allows you to defer all or part of a capital gain made from a capital gains tax (CGT) event happening to an active asset. The replacement asset period is the period starting one year before and ending two years after the last CGT event in the income year for which you obtain the rollover. The replacement asset period may be extended or modified by the Commissioner. In determining whether to allow an extended asset replacement period the Commissioner considers the following factors: ● whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension; ● whether there is any prejudice to the Commissioner if the additional time is allowed (however, the mere absence of prejudice is not enough to justify the granting of an extension); ● whether there is any unsettling of people, other than the Commissioner, or of established practices; ● the need to ensure fairness to people in like positions and the wider public interest; ● whether there is any mischief involved, and ● the consequences of the decision. Application to your situation We have considered the information provided with the ruling. Applying the relevant factors as listed above to the circumstances of your situation, the Commissioner has applied his discretion and will extend the replacement asset period. | Detailed Reasoning - Further issues for you to consider: The following information is provided as written guidance. A taxpayer who relies on guidance will remain liable for any tax shortfall if the guidance is incorrect or misleading and they make a mistake as a result (unless a time limit imposed by the law precludes the liability). However, they will be protected against the shortfall penalty and interest on the tax shortfall provided they relied on that guidance reasonably and in good faith. This ruling has not considered your eligibility for the small business rollover concession. You should ensure that you satisfy the basic conditions and any other conditions relevant for this exemption. More information is available from our website as follows: