Private ruling: Extension of time to acquire replacement asset
Published: April 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner allow you further time under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997), until 30 June 2014, to acquire a replacement capital gains tax (CGT) asset following the compulsory acquisition of your property? | A1: 

Relevant facts and circumstances: You originally applied for a private ruling requesting an extension of time to acquire a replacement asset. The Commissioner issued a notice of private ruling, allowing an extension of time until 30 June 2013, due to the fact that the property was compulsory acquired by a state authority and there was a protracted legal dispute with the authority in regards to the quantum of the compensation. The extension was granted, based on the consideration of your circumstances as follows: · You owned real property. · A state government agency made a compulsory acquisition of the property by way of publication in the state government Gazette. · An initial advance was made but this was considered grossly insufficient for the acquisition of a replacement property. · You have attended negotiation meetings with the government agency and some offers have been made. · You verbally accepted a verbal offer made from the agency as you did not wish to prolong the matter any further. · The agency suspended further negotiations pending specific barrister's advice. · You have engaged a barrister to provide an opinion of the matter and if necessary prepare a claim for lodgement with the relevant land and environment court. · The time frame for the settlement of this matter is unknown and difficult to predict.You have been advised that similar matters could take up to two years to resolve in court. · You have not incurred any expenditure to date to acquire a replacement property. Since the date of the notice of private ruling, you have received a further amount of money as additional compensation and settlement of the dispute in respect of the compulsory acquisition. You state that you have looked at a number of properties to acquire a replacement property since the settlement of the dispute. However, economic conditions have changed significantly since the property was originally purchased. You state that bank finance has become less readily available to enable you to acquire a suitable replacement property. You state that the availability of credit in the market is progressively improving and you are confident that the acquisition of a replacement property can be made by 30 June 2014. You are now requesting a further extension of time to acquire a replacement asset until 30 June 2014.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 124-B | Income Tax Assessment Act 1997 Subsection 124-75(3) | Income Tax Assessment Act 1997 Paragraph 124-75(3)(b) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1997 Subsection 104-10(6)

Reasons for decision: Detailed Reasoning - Detailed reasoning: Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) provides for a replacement asset rollover where an asset is compulsorily acquired, lost or destroyed. Subsection 124-75(3) of the ITAA 1997 requires you to incur at least some of the expenditure in acquiring a replacement CGT asset within one year before the event happens, or no later than one year after the end of the income year in which the event happens. The Commissioner can allow further time in 'special circumstances'. You owned a property. Your property was compulsorily acquired by an entity under a power conferred by an Australian law, which includes a state law (section 995-1 of the ITAA 1997). The time of the event is determined by subsection 104-10(6) of the ITAA 1997. The time of the event will be the earlier of: · when you received compensation from the entity · when the entity becomes the asset's owner · when the entity entered it under that power, or · when the entity took possession under that power. In this case, your property has been compulsorily acquired by a state government agency. You received compensation from the state government agency, and the transfer of ownership of the property to the state government agency occurred prior to this, being the date it was published in the state government Gazette. The earlier of the above therefore occurred when the transfer of ownership occurred. You did not acquire a replacement CGT asset prior to transfer of ownership and therefore to satisfy subsection 124-75(3) of the ITAA 1997, a replacement CGT asset must be acquired no later than one year after the end of the income year in which the event happened (paragraph 124-75(3)(b) of the ITAA 1997). You requested further time until the final quantum of compensation is agreed or determined by negotiation with the state government agency, or other suitable action, to satisfy the requirements of subsection 124-75(3) of the ITAA 1997. The Commissioner considered that your situation was a 'special circumstance' and granted an extension of time to allow you until 30 June 2013 to purchase a replacement asset and obtain rollover relief. This extension of time allowed a period of two years in which to finalise the dispute and a further time period of 12 months to acquire a replacement asset. Taxation Determination TD 2000/40 provides guidance on what are 'special circumstances' for the purposes of subsection 124-75(3) of the ITAA 1997. Examples are given which provide guidance for granting an extension of time. Having considered the facts of your situation, against guidance provided in TD 2000/40, in particular; · you received a majority of the compensation in the 2008-09 financial year. · the legal dispute was finalised when further compensation was received (which is only 3 months after a 3 year extension was granted) · you will have had (at the expiry of the original extension, approximately 3 years and 2 months since the full compensation was received, to acquire a replacement asset · you have provided no information to substantiate that you have taken reasonable steps to acquire a replacement property, and · that your inability to acquire a replacement property appears mainly dependent on issues you face in accessing finance (which is in no way unusual, uncommon or exceptional in the current environment). The Commissioner considers that your situation is no longer one of 'special circumstances' for the purposes of paragraph 124-75(3) (b) of the ITAA 1997. Accordingly, the Commissioner will not allow a further extension of time until 30 June 2014 to acquire a replacement asset.