Private ruling: Capital gains tax - replacement asset extension of time
Date of advice: 12 May 2020
Published: June 2020
Ruling period: Financial year ending 30 June 20XX | Financial year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion pursuant to subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow up until 30 June 20XX, for the taxpayers to incur expenditure in acquiring a replacement CGT asset? | A1: Yes Having considered the circumstances of both trusts and relevant factors, the Commissioner considers it appropriate to grant an extension of the replacement asset period. Further information can be found be searching 'QC 17204' on ato.gov.au

Relevant facts and circumstances: The taxpayers were previously the registered owners of land located on a ABC Highway. The two taxpayers held this land in partnership, in equal proportions (50% each as tenants in common). The taxpayers used the land in leasing activities and derived rental income from the land. About X years ago the trustee was issued with a Taking Order, under which the Minister for Transport took possession of portions of the land for the purposes of constructing the ABC Highway. The trustee made a claim for compensation in respect of the taken land. An advance payment of compensation was received with less than X months remaining in the roll-over period. Ongoing discussions and negotiations occurred in relation to the final amount of compensation to be paid in the months that followed. Independent valuations of the property in question were sought. Shortly after the roll-over period had expired the trustee entered into a contract to acquire a replacement property. Funds received from the advance payment were put to the acquisition of this property and a deposit was paid. Then the trustee and the Commissioner of Main Roads entered into a 'Final Discharge of Claim', whereby the taxpayers agreed to accept an additional compensation amount, in full and final satisfaction of the claim for compensation. Following on from a previous extension of time the trustee entered into a Memorandum of Understanding in respect of a replacement property with acquisition expected in early 20XX. However, the vendor has been distracted and occupied with matters connected with the COVD-19 outbreak. It is intended that the acquisition will be going ahead but settlement date could be after the previous extension expires. The taxpayers now wish to use the proceeds from this final compensation payment to acquire an additional property. Both replacement properties have been / will be used for a similar purpose as the original land (being in the activity of generating rental income) satisfying the requirements of subsection 124-75(5) of the ITAA1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 124-70 | Income Tax Assessment Act 1997 Section 124-75 | Income Tax Assessment Act 1997 Section 995-1