Private ruling: CGT - SBC - replacement asset period
Date of advice: 22 December 2016
Published: June 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the beginning of the replacement asset period to the date you acquired property B? | A1: Yes.

Relevant facts and circumstances: You have been operating as a primary producer since 200X when you purchased a XXX hectare property (property A). You signed contracts to purchase part of an adjacent property, property B. Due to the subdivision of titles, settlement was delayed. You listed part of property A for sale. To enable the sale, the land had to be surveyed and subdivided and a development application lodged. Survey work commenced in 201X. The development application was approved, but the subdivision was not approved for another 12 months. Sale contracts were then exchanged for the sale of part of property A. Settlement occurred on outside the replacement asset period.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 104-190(2) and | Income Tax Assessment Act 1997 Subsection 109-5(2) .

Reasons for decision: Summary: Where a taxpayer elects to take advantage of the small business rollover, there are rollover conditions that must be satisfied by the end of the replacement asset period. This period starts one year before and ends two years after the CGT event for which you choose the rollover to occur, or a longer period that the Commissioner allows. If the rollover conditions are not met within the replacement asset period the gain will become assessable. You satisfy the rollover conditions where you meet all the following conditions: ● you acquire one or more CGT assets as replacement assets or make a capital improvement to one or more existing assets, or both, within the replacement asset period ● the replacement asset, or the asset to which the capital improvement was made is an active asset at the end of the replacement asset period ● if the replacement asset is a share in a company or an interest in a trust, at the end of the replacement asset period: ● you, or an entity connected with you, are a CGT concession stakeholder in the company or trust, or ● CGT concession stakeholders in the company or trust have a small business participation percentage in the interposed entity of at least 90% ● the capital gain that is being rolled over is not more than the sum of the following ● the amount paid to acquire the replacement asset (that is, the first element of the cost base of the replacement asset) ● any incidental costs incurred in acquiring that asset, which can include giving property (that is, the second element of the cost base of the replacement asset), and ● the amount expended on capital improvements to one or more assets that were acquired or already owned (that is, fourth element expenditure). | Detailed Reasoning - Extension to the asset replacement period: The general rules for the acquisition of CGT assets are contained in section 109-5 of the ITAA 1997. The table in subsection 109-5(2) of the ITAA 1997 specifically states that where an entity disposes of a CGT asset to you, you acquire it when the disposal contract is entered into or, if none, when the entity stops being the asset's owner. You are taken to have disposed of property A on the date of the contract of sale. Accordingly the replacement asset period is one year before, and two years after this date. You are taken to have acquired property B on the contract date, February 2014. This acquisition occurred outside of the replacement asset period. However the Commissioner may extend the replacement asset period in certain circumstances (subsection 104-190(2) of the ITAA 1997). The relevant factors in determining whether to extend the replacement asset period are: ● there should be evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension ● account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension ● account must be had of any unsettling of people, other than the Commissioner, or of established practices ● there must be a consideration of fairness to people in like positions and the wider public interest ● whether there is any mischief involved ● a consideration of the consequences. In your case you had listed property A for sale. You were unable to sell property A in time to ensure the purchase of property B would be within the asset replacement period due to subdivision delays. In these circumstances, we consider that you have provided an acceptable explanation for the delay in disposing of property A. We do not consider that extending the asset replacement period by a period of X months would unsettle others or that any mischief is involved. Accordingly, the Commissioner will exercise his discretion to allow an extension to the beginning of the replacement asset period to the acquisition date of property B. Property B is therefore eligible to be a replacement asset for the small business rollover.