Private ruling: CGT - compulsory acquisition - replacement asset rollover
Published: January 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the purchase of any or all of the current or future income producing properties satisfy the conditions of a replacement capital gains tax (CGT) asset? | A1: Yes. | Q2: Will the Commissioner exercise his discretion and extend the time for obtaining your replacement assets until 30 June 2015? | A2: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 124-70. | Income Tax Assessment Act 1997 Section 124-75. | Income Tax Assessment Act 1997 Subsection 124-75(2). | Income Tax Assessment Act 1997 Subsection 124-75(3). | Income Tax Assessment Act 1997 Paragraph 124-75(3)(a). | Income Tax Assessment Act 1997 Paragraph 124-75(3)(b).

Reasons for decision: Summary: Section 124-70 of the Income Tax Assessment Act 1997 (ITAA 1997) allows CGT roll-over relief if an asset owned by the taxpayer is compulsorily acquired by an Australian government agency. A further requirement is that the owner of the original asset must receive money or another CGT asset or both for the CGT event to be eligible for roll-over. On satisfying these conditions, section 124-75 of the ITAA 1997 provides other requirements which must be satisfied if money is received for the event happening. Under subsection 124-75(2) of the ITAA 1997, the owner of the asset must incur expenditure in acquiring another CGT asset. In accordance with paragraph 124-75(3)(a) of the ITAA 1997, at least some of the expenditure must be incurred no earlier than one year before the event happens, or under paragraph 124-75(3) (b) of the ITAA 1997, no later than one year after the end of the income year in which the event happens, or within such time as the Commissioner allows in special circumstances. To meet the requirements of paragraph 124-75(3) (b) of the ITAA 1997 the new asset must be acquired on or before 30 June 2013 or within such time as the Commissioner allows in special circumstances. You are seeking an extension to 30 June 2015. When considering what factors are taken into consideration when allowing an extension of time to purchase a replacement asset, Taxation Determination TD 2000/40 is used to give guidance on what factors the Commissioner will take into consideration when exercising the discretion. Example 3 of TD 2000/40 looks at the compulsory acquisition of a property. It reads: 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 . In your circumstances, you have been delayed in purchasing the replacement assets due to negotiations in relation to the payment offered to you by a Government authority. This is similar to the circumstances outlined in example 3 above. Accordingly, the Commissioner will extend the time period for you to obtain the replacement assets to 30 June 2015 as a delay in receiving your payment from a Government authority is a reasonable explanation for granting an extension of time. Where the original asset was not in any way connected to a business being carried on by you, the replacement asset must be used (for a reasonable period after it is acquired) for the same purpose, or a similar purpose, to the purpose for which the original asset was used just before the event happened. Your property was acquired by a Government authority in the 20ZZ income year. Taxation Determination TD 2000/42 provides some guidance as to the scope of the words 'for the same purpose… or for a similar purpose' that are used in subsection 124-75(4) of the ITAA 1997. When establishing whether or not the purchase of a residential or commercial property with an existing lease and tenants or a vacant residential or commercial property with the intention to lease it out will satisfy the requirements under subsection 124-75(4) of the ITAA 1997, consideration must be given as to whether the assets would be 'for the same purpose… or for a similar purpose' as that of your original asset. In your case, the original asset you owned was farming land which was leased out. The replacement asset you will purchase will be any or all of the following: · Residential property that is vacant at the time it is acquired but to be used to derive rental income for a reasonable time. · A residential property that is subject to an existing lease and will continue to be leased and derive rental income for a reasonable time. · A vacant block (either residential or commercial) that is vacant at the time it is acquired but is to be used to derive rental income for a reasonable time until the land is developed; and · A vacant block (either residential or commercial) that is subject to an existing lease and will continue to be leased and used to derive rental income for a reasonable time until the land is developed. The original asset was leased out and you derived income from the property which had the purpose of you benefiting from rental income and capital growth from real property value. Any of the investments, listed above, which you are considering purchasing, can be said to be used for the purpose of benefiting from rental income and capital growth from real property value, and can reasonably be viewed as being used for the same purpose or at least a similar purpose. Therefore the purchase of the replacement assets that you are considering purchasing will satisfy the requirements under subsection 124-75(4) of the ITAA 1997.

Relevant facts: You acquired a one third share in a block of land after 19 September 1985. | The land was held as tenants in common with other parties. | The land was leased to an unrelated party. | The land derived income from the tenant until the 20XX income year. | The land was used for farming. | You became aware that the land was designated for compulsorily acquisition in the 20YY income year. | You and the other owners agreed to let the tenant use the land rent free until the land was compulsorily acquired. | Your property was compulsorily acquired by a Government authority. | You have received an amount in compensation. | You will purchase a variety of properties which will include any or all of the following: | · A residential property that is vacant at the time it is acquired but to be used to derive rental income for a reasonable time.