Private ruling: CGT - replacement asset period - extension of time
Published: February 2015
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: Year ending 30 June 2013

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 period of time to acquire a replacement asset until a specified date? | A1: Yes

Relevant facts and circumstances: You entered into a contract for the sale of a commercial property in late-20XX Settlement for this contract was not concluded until mid-20YY As a result of the sale, you made a capital gain. You have stated that you satisfied the basic conditions contained in subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the sale of the property. Satisfying these conditions allows you to access various small business concessions in regards to capital gains. You applied the general capital gains tax (CGT) discount and small business active asset reduction concession to the capital gain. You then chose to apply the small business roll-over concession contained in subdivision 152-E of the ITAA 1997 to the remaining capital gain. You reported this information in your income tax return for the relevant year. You understand that if you do not acquire a replacement asset by late-20YY, a capital gain will be realised (CGT event J5). You have made the following attempts to acquire a replacement asset: 1. During early 20YY you were in negotiations to purchase a property. You were unable to purchase the property as there were existing leases in place which could not be terminated. 2. During mid 20YY you made an offer to purchase a property which was verbally accepted and you paid a deposit. However, the vendor subsequently received a higher offer, and you were later advised that they had exchanged contracts with the other party. You are actively seeking to purchase a replacement asset, however you have found it difficult to find an appropriate commercial property. You have requested an extension to the replacement asset period.

Relevant legislative provisions: Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997) | Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997) Section 104-197 of the Income Tax Assessment Act 1997 (ITAA 1997) | Paragraph 104-185(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) Subsection 104-197(5) of the Income Tax Assessment Act 1997 (ITAA 1997) | Subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997)

Reasons for decision: Detailed Reasoning - Question 1: Note: All references are to the Income Tax Assessment Act 1997 (ITAA 1997). Subdivision 152-E provides for a small business roll-over concession as part of the small business capital gains tax (CGT) relief provisions. The roll-over concession allows you to disregard the capital gain arising from a CGT event in relation to a small business asset, provided that certain conditions are satisfied. The basic conditions which must be met to obtain relief are set out in subdivision 152-A. In your case, you have stated that you satisfied these basic conditions. In addition to the basic conditions, section 104-197 requires you to acquire a replacement asset within a set timeframe known as the replacement asset period. Failure to acquire a replacement asset within this period means that you can no longer apply the roll-over concession, and a capital gain will be realised (CGT event J5). The replacement asset period is defined under paragraph 104-185(1)(a) as the period starting one year before, and ending two years after, the last CGT event in the income year for which you obtained the roll-over. In your case, you entered into a contract to sell your property in late-20XX, meaning that your replacement asset period ended in late-20YY. Subsection 104-197(5) allows for the replacement asset period to be modified or extended in accordance with section 104-190. Subsection 104-190(2) states that the Commissioner may extend the replacement asset period. The decision to extend the replacement asset period, and for how long, is made at the discretion of the Commissioner. In determining if this discretion should be exercised, the Commissioner has considered the following factors: • 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 • consideration of the consequences. In your case, you entered negotiations to purchase two different commercial properties, however both of these purchase attempts were unsuccessful due to factors outside of your control. One property was unsuitable as there were existing leases in place which could not be terminated. You reached a verbal agreement with the vendor of the other property and paid a deposit, but the vendor subsequently received a higher offer and exchanged contracts with the other party. These negotiations happened some months before the end of your replacement asset period. You have continued to actively seek to purchase a replacement asset, but have found it difficult to find a suitable commercial property. Given the circumstances, this is considered to be an acceptable explanation for the extension requested. Allowing an extension of time would not prejudice the Commissioner, and there would appear to be no unsettling of other people or established practices in this case. There is no evidence of a lack of fairness between you and other people in like positions and the wider public interest. Other persons are within their rights to have a request for an extension of time considered, based on the individual facts of each case. Based on the facts of this case there appears to be no mischief involved. The consequences to you of not granting the extension of time would be to deny you the small business roll-over concession under the CGT small business relief provisions. The purpose of Subdivision 152-E is to allow small business taxpayers to use the relevant portion of the capital gain to acquire new CGT assets. Having applied these factors to your situation, we consider that you have made a genuine attempt to acquire a replacement asset. The extension of time that you are requesting is not unreasonable, given your circumstances. Accordingly, the Commissioner will apply his discretion under subsection 104-190(2) and allow a reasonable extension to the time limit. Your replacement asset period will therefore be extended until a specified date, in accordance with your request.