Private ruling: CGT - replacement asset
Published: July 2012
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Questions and answers | Will the Commissioner accept the two properties purchased by you as replacement assets? | No. | Will the Commissioner exercise his discretion and extend the time for obtaining a replacement asset? | No.

Relevant facts and circumstances: You purchased a vacant block of land with your sibling. This block of land was zoned rural. You intended to build a house on the land and use it as your main residence. You put in an application to the Council to build a shed on the property but this was denied due to the property being rezoned to public recreation. The property was used by you for agistments. Your property was compulsory acquired the Government. There was a dispute over the value of the property. You received the compensation payment a few years after the property was acquired. You acquired a 50% share in your partner's residence (Property 1). You used this property as your main residence. You acquired a second property as joint tenants with your partner.(Property 2). This property was used as your main residents with the first property being rented out. You wish for both of the properties to be the replacement assets.

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 capital gains tax 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. The replacement asset must be used for the same or similar purpose as the previous asset just before the event. The property was acquired by the government a number of years ago. The property was vacant land and was rezoned from rural to recreational land. To meet the requirements under subsection 124-75 of the ITAA 1997 you needed to acquire the same or similar asset and use it for the same purpose. You have purchased two residential properties which have both been used as your main residence and now one is used as a rental property (Property 1) and the other your main residence (Property 2). The land that was acquired by the Government was never used as your main residence and you were not able to build a residence on the property due to the zoning. A mere intention to construct a dwelling or occupy a dwelling as your main residence without actually doing so is not sufficient to be entitled to the main residence exemption. Taxation Determination TD 2000/42 discusses assets used for the same or similar purpose. Example 3 of TD 2000/42 is similar to your situation: Marina owns a house near the sea which she has always rented out. The house has, for capital gains purposes, been treated as an asset separate from the land on which it is situated - the land having been acquired in 1980 - because of the operation of Subdivision 108-D. The house is destroyed by a cyclone and she has the choice of either: · acquiring a city unit for rental purposes; or · rebuilding the house to use as her main residence. For the purposes of Subdivision 124-B, the use of the city unit will fall within the scope of the same or similar purpose test. The use of the new building as a main residence will not. You used the vacant land for agistment. Therefore the assets you have purchased as replacement assets do not meet the requirements under subsection 124-75 of the ITAA 1997. 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 2011or within such time as the Commissioner allows in special circumstances. To determine if the time limit should be extended, we consider factors such as whether: · You have an acceptable explanation for not acquiring a replacement asset in the time frame · It would be fair and equitable in the circumstances to allow further time to acquire an asset · Prejudice to the Commissioner may result from additional time being allowed to you · It would be fair and equitable to people in similar positions and the wider public interest and · Any mischief is involved. The Commissioner will not extend the time to purchase more replacement assets as there are no special circumstances to take into consideration. The delays in receiving all the compensation payment did not prevent you from purchasing the two residential properties which do not meet the requirements in subsection 124-75 of the ITAA 1997. Unfortunately you cannot purchase assets in the hope they will meet the requirements under subsection 124-75 of the ITAA 1997 and then if they don't meet the requirements request an extension of time asking that court proceedings be taken into consideration.

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