Private ruling: Capital gain tax - small business concessions - extension of time
Date of advice: 12 March 2026
Published: 4 May 2026
Ruling period: Year ended 30 June 2024 | Year ended 30 June 2025 | Year ending 30 June 2026
Date scheme commenced: 1 July 2021

Ruling: Q1: Will the Commissioner exercise the discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period to 30 June 2026? | A1: Yes.

Relevant facts and circumstances: In November 20XX, Individual A and Individual B (the taxpayers) disposed of farmland, resulting in a capital gain after applying the general CGT discount. The taxpayers obtained professional advice and elected to apply the small business CGT replacement asset rollover on the basis that they intended to acquire a replacement asset to be used in a business. In October 20XX, the taxpayers acquired a residential property (the Property) with the intention of establishing a short-term accommodation business. Following acquisition, the taxpayers undertook planning and preliminary investigations for renovation of the Property. Renovation works did not commence immediately. Between October 20XX and June 20XX, progress on the Property was delayed due to: • personal and health circumstances affecting the taxpayers; and • time required to obtain quotations and assess renovation options. In June 20XX, preliminary physical works commenced. Subsequent inspections identified that the extent of works required was greater than anticipated. The taxpayers decided that demolition and redevelopment of the Property would be more appropriate than renovation. In August 20XX, Individual A experienced a significant health event requiring hospitalisation and ongoing medical investigations, which further delayed progress on the project. As a result of changed circumstances, the taxpayers revised their business strategy to demolish the existing dwelling and construct two two-bedroom apartments, one to be used as their main residence and the other(s) for short-term accommodation business purposes. Development approval for the revised project was required and was granted in September 20XX. In November 20XX, significant flooding occurred in the region, disrupting demolition and construction activities and limiting the availability of contractors for several months. During this period, demolition and construction works could not proceed. The Property was demolished in April 20XX. Planning and sustainability documentation were completed in May 20XX. The taxpayers applied for and later received the construction certificate. During this period, further design amendments were made in consultation with building professionals. The replacement asset period ended in November 20XX, at which time construction of the replacement asset had not commenced. The taxpayers' prior tax advisers did not advise them of the requirement to satisfy the replacement asset conditions within the relevant period. The taxpayers' income tax return for the year ended 30 June 2023 did not include CGT event J5. New accountants were engaged in April 20XX, who identified the outstanding CGT issue arising from the replacement asset rollover. Construction commenced after the construction certificate was issued and is ongoing. The Property is expected to be completed and available for short-term accommodation business use in April 2026.

Relevant legislative provisions: Income Tax Assessment Act section 104-190 | Income Tax Assessment Act Subdivision 152-E

Reasons for decision: Summary: Subdivision 152-E of the ITAA 1997 contains the provisions regarding the small business roll-over relief. Under sections 152-410 and 152-415 of the ITAA 1997, the small business roll-over relief allows entities that satisfy the conditions in Subdivision 152-A of the ITAA 1997 to defer all or part of each capital gain arising from a CGT event happening to an active asset. Under note 1(a) of section 152-410 of the ITAA 1997, this roll-over is available to the entity even if they have not acquired a replacement asset at the time of claiming the roll-over provided that a replacement asset is acquired by the end of the replacement asset period. CGT event J5 happens if a replacement asset is not acquired by the end of the replacement asset period: pursuant to section 104-197 of the ITAA 1997. As outlined in subsection 104-190(1A) of the ITAA 1997, the replacement asset period is the period starting one year before the last CGT event in the income year for which you obtain the roll-over and ending 2 years after the last CGT event in the income year for which you obtain the roll-over. As outlined in subsection 104-190(2) of the ITAA 1997, the replacement asset period may be extended 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 mischief involved, and • the consequences of the decision. Application to your circumstance In this case the Taxpayers sold the farmland in November 20XX and applies the replacement asset CGT rollover. The replacement asset period ended November 20XX. In this time the Taxpayers bought the Property which they were going to use to carry on a business and commenced renovations. The Taxpayers were then delayed for personal, medical and environmental issues. This has impacted the time it has taken them to renovate and ready the Property for business use. Furthermore, by granting this extension of time to acquire replacement asset: • there does not appear to be any prejudice to the Commissioner or any other parties; • there is no unsettling of people or of established practices; • there does not appear to be any mischief involved in this case; and • the Commissioner considers it to be fair to people in like positions and the wider public interest. Therefore, the Commissioner will exercise the discretion under subsection 104-190(2) of the ITAA 1997 to allow an extension of time to ready the replacement asset for use.