Private ruling: CGT - rollover - extension of time - replacement asset
Date of advice: 13 June 2023
Published: 7 August 2023
Ruling period: 1 July 202X to 30 June 202X
Date scheme commenced: XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time to acquire a replacement asset? | A1: Yes

Relevant facts and circumstances: The Trust had premises that was compulsory acquired by an Australian State Government. Under the ITAA 1997, due to the compulsory acquisition and subject to certain requirements being satisfied, the Trust is able to rollover the capital gain from the acquisition into a new asset and therefore defer Capital Gains Tax (CGT) on the event caused by the acquisition. The Trust has not been able to find a suitable replacement property before the end of the period allowed for the CGT replacement asset rollover in Division 124 of the ITAA 1997. Aside from limited stock availability in the marketplace to purchase, the Trust has spent the time moving its business from the acquired property to temporary accommodation until they can find a suitable premises for purchase. In addition, the Trust is still negotiating a settlement with the Government, and this is presently absorbing a considerable amount of their time. Although the transfer on the certificate of title to the Government has been registered, a settlement for compensation is still to be reached. This means the final rollover amount is still not settled. Relevant legislative provisions Income Tax Assessment Act 1997 S ubsection 124-70(1) Income Tax Assessment Act 1997 Section 124-75 Income Tax Assessment Act 1997 Subsection 124-75(3) Income Tax Assessment Act 1997 Subsection 124-75(4) Reasons for decision All references are to the ITAA 1997 unless otherwise stated. Summary The Commissioner will exercise his discretion pursuant to subsection 124-75(3) and allow an extension of time in order to meet the eligibility requirements of Subdivision 124-B. Detailed reasoning Rollover relief for the compulsory acquisition of a CGT asset is available where the conditions outlined in Subdivision 124-B are met. A replacement-asset rollover allows an entity, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens. Under subsection 124-70(1) you may be able to choose a rollover if a CGT asset is compulsorily acquired by an Australian Government agency. If you receive money for the sale of the asset further conditions are imposed by section 124-75. Subsection 124-75(2) requires that the owner of the asset incur expenditure in acquiring another CGT asset. Subsection 124-75(3) requires you to incur expenditure in acquiring another CGT asset no earlier than one year before the disposal happens and no later than one year after the end of the income year in which the disposal happens, or within such further time as the Commissioner allows in special circumstances. Taxation Determination TD 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the Income Tax Assessment Act 1997 ? provides guidelines as to when the Commissioner will extend the period in which a replacement asset can be acquired, in particular what are special circumstances. TD 2000/40 in paragraph 1 provides that the expression 'special circumstances' in subsection 124-75(3) by its nature is incapable of a precise or exhaustive definition. and in paragraph 3 that what are 'special circumstances' depends on the facts of each particular case. Paragraph 6 in TD 2000/40 provides the following example: Example 3: 6. Graeme had a commercial property compulsorily acquired by a State authority. Graeme is having a protracted legal dispute with the authority over the quantum of the compensation. On these facts, we would accept that there are special circumstances to allow further time . Application to your circumstances In this case the Trust had a premises that was compulsorily acquired by the Government in the income year ending 30 June 202X and to date: • the final amount of compensation has not been determined so the balance of the compensation payment has not been received • no suitable property has yet been located • there has been excess demand for quality commercial properties such that there is limited stock availability in the marketplace for purchase. Based on these facts it is considered that special circumstances do exist to warrant the Commissioner exercising his discretion to allow an extension of time to obtain a replacement asset until 30 June 202X.