Private ruling: Small business capital gains tax concessions
Published: July 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

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 beginning of the replacement asset period to the date you acquired property B? | A1: Yes.

Relevant facts and circumstances: You purchased property A in the 200X financial year. The property was used by a business operated by you and your spouse in partnership. You purchased property B in the 200Y financial year. This property is used by the business. The sale of property A was initially marketed by a real estate agency. An auction occurred in the 200Y financial year. This auction was unsuccessful. After an unsuccessful marketing campaign, you approached another real estate agency to sell the property. Property A was sold more than 1 year after you purchased property B.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-190(2) | Income Tax Assessment Act 1997 subsection 109-5(2)

Reasons for decision: Summary: Where a taxpayer elects to take advantage of the small business rollover, there are rollover conditions that must be satisfied by the end of the replacement asset period. This period starts one year before and ends two years after the capital gains tax (CGT) event for which you choose the rollover to occur, or a longer period that the Commissioner allows. If the rollover conditions are not met within the replacement asset period the gain will become assessable. The general rules for the acquisition of CGT assets are contained in section 109-5 of the ITAA 1997. The table in subsection 109-5(2) of the ITAA 1997 specifically states that where an entity disposes of a CGT asset to you, you acquire it when the disposal contract is entered into or, if none, when the entity stops being the asset's owner. You are taken to have disposed of property A on the date of the contract of sale. Accordingly the replacement asset period is one year before, and two years after this date. You acquired property B outside of the replacement asset period. However the Commissioner may extend the replacement asset period in certain circumstances (subsection 104-190(2) of the ITAA 1997). The relevant factors in determining whether to extend the replacement asset period are: · 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 · a consideration of the consequences. | Detailed Reasoning - Application to your circumstances: In this case, you listed property A for sale during the 200Y financial year. You were unable to sell the property in time to ensure the purchase of property B would be within the replacement asset period. You held an auction which was unsuccessful and listed the property with several agents. In these circumstances, we consider that you have provided an acceptable explanation for the delay in disposing property A. We do not consider that extending the asset replacement period by a period of just over a month would unsettle others or that any mischief is involved. Accordingly, the Commissioner will exercise his discretion to allow an extension to the beginning of the replacement asset period to the acquisition date of property B. This property is therefore eligible to be a replacement asset for the small business rollover.