Private ruling: Capital gains tax – same or similar purpose test
Date of advice: 17 December 2018
Published: April 2019
Ruling period: Year ending 30 June 2019 | Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the purchase of the property satisfy the same or similar purpose test in section 124-75(4) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. Section 124-75 of the ITAA 1997 requires that you must use the replacement asset (for a reasonable time after you acquired it) for the same purpose as, or for a similar purpose to, the purpose for which you used the original asset just before the event happened. It is not relevant, under this test, to have regard to the potential use to which either the original or replacement asset might be put. As you were managing commercial property prior to the acquisition any other commercial properties acquired as a result or related to the roll-over meets the same or similar purpose requirements and satisfies the conditions of subsection 125-75(4) ITAA 1997. | Q2: Did you incur at least some of the expenditure in acquiring the Replacement Property before XX June 20XX? | A2: Yes. Subsection 124-75(3) of the ITAA 1997 requires you to incur some of the expenditure either one year before or one year after the end of the income year in which the event happens or within such further time as the Commissioner allows. The Commissioner considers that expenditure incurred in 20XX are expenses that relate to acquisition of the CGT asset, therefore you have satisfied the requirements under section 124-75(3) ITAA 1997.

Relevant facts and circumstances: You acquired a property in XXXX. At the time you acquired the Property it was a retail building and was subject to a number of leases. You intended to develop the Property into a mixed commercial and residential building and to continue deriving rental income from the Property. A planning permit was submitted in XXXX, and a Planning Permit was issued. The Permit allowed for the demolition of the existing building and construction of a new mixed use building. The new building would include accommodation in the form of student. In XXXX, a Notice of Acquisition was published in the Gazette on behalf of the Government department (Authority). That Notice stated that the Authority had compulsory acquired the Property. At the time of the compulsory acquisition the Property was still subject to a number of leases, and construction in relation to the development had not commenced. On or about XXXX the Authority made an initial offer of compensation of $XX,XXX,XXX. In XXXX you first advised the Authority that you would dispute the Initial Offer on the basis that the Initial Offer is insufficient compensation for the compulsory acquisition of the property. Despite this, you requested and the Authority agreed to pay you an advance of compensation equal to the initial offer. You submitted a response to the Initial Offer, and a valuer’s conference was held on in XXXX. The matter has not been resolved through the valuer’s conference process and it is now a disputed claim. Since XXXX you have inspected a number or properties to find a suitable replacement asset. In XXXX you received a brochure and information for a Replacement property. You performed legal due diligence on the Replacement Property on XXXX. The Replacement Property is a commercial and retail building. Between XXXX and XXXX you made a number of bids to acquire the Replacement Property. On XXXX you paid $X,XXX into the trust account of the sales agent. You incurred Legal fees, search fees and planning fees incurred for the purchase of the property within one year after the end of the income year of receiving the Notice of Acquisition. After XXXX you entered into a contract for sale for the Replacement Property. Settlement took place on XXXX.

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