Private ruling: Small business replacement asset rollover concession
Published: September 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise his discretion under section 104-190(2) of the I ncome Tax Assessment Act 1997 (ITAA 1997) to extend the time limit under subsection 104-185(1) of the ITAA 1997 for the replacement asset to be acquired? | A1: Yes.

Relevant facts and circumstances: Your entity sold the business on dd/mm/yyyy, which triggered a capital gain on the sale of the business. The business met the requirement of a small business and is eligible to the small business CGT concessions. The small business rollover conditions were satisfied. The two year period to acquire a replacement asset to defer the CGT ended on dd/mm/yyyy, which has passed. During the period there were professional and personal issues which delayed you from acquiring the replacement asset within the two year period. You have a child who has special needs and requires attention. The business sale that occurred resulted in a merger of three separate businesses into one, with four individuals. You had intended to complete a handover of the business over a few years, when you sold the business. You intended to do this by engaging with the business in a new capacity as you were no longer the owner of the business. Your original position, before the sale of the business, was taken over by a partner. You went on holidays for a period of months. Before you went on holidays you were in negotiations with a company which you intended to acquire as a replacement asset and had set up a deal with the current owners. Upon your return from holidays, it became evident that the partner was unsuitable for the business and the role that they were entrusted to perform. The business was struggling in an essential part of their operations. You were required to step in and perform their duties, taking on additional responsibilities than which you were previously engaged with. During this time you began the process of removing the partner from the business, and are currently dealing with solicitors. While you are resolving the issues within your previous business, you have been unable to acquire the new business. The owners of the replacement asset have been waiting for you during this time of delay and you will be able to acquire the asset when your dealings with the business are complete.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) section 104-185 | Income Tax Assessment Act 1997 (ITAA 1997) section 104-190

Reasons for decision: Summary: The small business rollover allows you to defer the capital gain made from a Capital Gains Tax (CGT) event if you acquire one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain relief are set out in Subdivision 152-A of the ITAA 1997. For you to obtain a rollover, subsection 104-185(1) of the ITAA 1997 requires you to acquire a replacement asset within a period starting one year before, and ending two years after the date of disposal of the original asset. Subsection 104-190(2) of the ITAA 1997 states that the Commissioner may exercise his discretion to extend those time limits. In determining if the discretion would 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. These factors as they relate to you are discussed below. You sold your business (the active asset) in mm/yyyy and had full intentions to acquire the replacement asset within the two year rollover period. You had untaken serious negotiations with another company to acquire it as a replacement asset, by mm/yyyy, and had arrangements had been made. During this time, you were assisting with the handover of your business when unforeseen circumstances arose which, for professional reasons, you were required to assist in resolving. This has been a time consuming and put significant restrictions on your ability to acquire the replacement asset within the two year period. Although final negotiations with the company are presently on hold, you are confident you will be able to acquire the asset by mm/yyyy. Having considered your situation, you appear to have made a genuine attempt to comply with the requirements of subsection 104-185(1). The extension of time that you are requesting is not unreasonable, given your circumstances. Accordingly, the Commissioner is able to apply his discretion and extend under subsection 104-190(2) and allow a reasonable extension to the time limit. In view of this, the time limit that would require the replacement asset to be purchased no later than two years after the sale of the active asset will be extended, in accordance with your request.