Private ruling: Extension to the replacement asset period
Date of advice: 4 February 2016
Published: March 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

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 replacement asset period to the 20XX-XX financial year? | A1: Yes | Q2: If you enter into a contract which is dated within the asset replacement period, but makes payment of the contract after the asset replacement period expires, is the purchase considered to be within the asset replacement period for the purposes of the Small Business rollover relief under Subdivison 152-E of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: In the relevant financial year you sold a property on which you operated a business and exercised the small business capital gains tax (CGT) rollover to defer capital gains that you made. The business moved its operations to a new property. Since then you have commenced constructing improvements at the new property. These improvements are ongoing and are not expected to be completed until during the 20XX-XX financial year. The improvements include the construction of buildings which require council approval. Since commencing the improvements, council development requirements have changed to incorporate State Planning Policy and guidelines for building in bushfire prone areas. As a result, you have been required to enter into consultation with a fire consultant and obtain a bushfire assessment and management plan. You have also experienced delays in progress due to contractor availability for the bridge and dam construction which may be impacted on the by bushfire assessment. You have provided a schedule of the works completed to date and the actions to be taken between now and the 20XX-XX financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 104-190(2) | Income Tax Assessment Act 1997 Section 109-5 | Income Tax Assessment Act 1997 Division 152-E

Reasons for decision: Detailed Reasoning - Extension to the asset replacement period: Division 152-E of the Income Tax Assessment Act 1997 (ITAA 1997) allows a small business to 'rollover', that is to defer, all or part of a capital gain made from a capital gains tax (CGT) event happening to an active asset. A condition of choosing the rollover is that you must replace the active asset or incurred expenditure on a capital improvement to an existing asset by the end of the replacement asset period. This period starts one year before and ends two years after the relevant CGT event. 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, and • a consideration of the consequences. You rolled over capital gains under the small business rollover during the relevant financial year. Due to the scope of the improvements to be performed on your property and changes in State legislation you will be unable to complete the required improvements within the replacement asset period. You have provided details of the work undertaken to date and the timeline for future work to be performed. Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner has applied his discretion and will extend the asset replacement test to the 20XX-XX financial year. | Detailed Reasoning - Acquisition date of a CGT asset: Section 109-5 of the ITAA 1997 states that in general, you acquire a CGT asset when you become its owner. The table attached to subsection 109-5(2) of the ITAA 1997 sets out specific rules for the circumstances in which, and the time at which, you acquired a CGT asset as a result of a CGT event happening. Event A1 (case 1) in the table states where an entity disposes of a CGT asset to you, you acquire the asset when the disposal contract is entered into or, if none, when the entity stops being the asset's owner. Thus, you are considered to be the owner of a CGT asset from the time you enter a contract to purchase the asset. This is irrespective of when you make the payment under the contract.