Private ruling: Income Tax Capital Gains Tax Rollovers Other
Date of advice: 7 July 2015
Published: July 2015
Ruling period: 1 July 2015 to 30 June 2019
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow further time for you to acquire a replacement asset for land that was compulsorily acquired in by an Australian Government Agency? | A1: Yes | Q2: Will the Commissioner allow further time until 30 June 2019 for you to acquire a replacement asset following the compulsory acquisition of your property and the special circumstances that followed? | A2: Yes

Relevant facts and circumstances: 1. You are a trust. 2. You owned land (the Land) which was compulsorily acquired by an Australian Government Agency in the year ended 30 June 20XX. 3. You are dissatisfied by the quantum of the compensation offered by the Australian Government Agency and are in the process of taking action against them in the Supreme Court (the Dispute). 4. You have been advised by your counsel that it will take approximately two years to settle the Dispute. 5. The amount of compensation for the Land will be determined by the resolution of the Dispute. 6. A replacement asset can only be acquired by you once the amount of compensation is determined as the amount of compensation will determine the nature of the replacement asset. 7. You believe that, from the time the Dispute is resolved, it will take between one to two years, to acquire a suitable replacement asset.

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(3)(a) | Income Tax Assessment Act 1997, subsection 124-75(3)(b)

Reasons for decision: Detailed Reasoning - Issue 1: Asset compulsorily acquired - extension of time to acquire replacement asset | Detailed Reasoning - Question 1: Section 124-70 of the ITAA 1997 allows capital gains tax (CGT) roll-over relief if an asset, owned by a taxpayer, is compulsorily acquired by an entity under a power conferred by Australian law. If the taxpayer receives money for the sale of the asset then the conditions in section 124-75 of the ITAA 1997 must be satisfied. Under subsection: • 124-75(3)(a) of the ITAA 1997 you must incur some expenditure in acquiring a replacement CGT asset no earlier than one year before the CGT event relating to the compulsory acquisition the CGT asset or within such further time as allowed by the Commissioner in special circumstances. • 124-75(3)(b) of the ITAA 1997 you must incur some expenditure in acquiring a replacement CGT asset no later than one year after the CGT event relating to the compulsory acquisition of the CGT asset or within such further time as allowed by the Commissioner in special circumstances. In your circumstances the Land was compulsorily acquired by an entity under power conferred by Australian law in the year ended 30 June 20XX. As you have not incurred any expenditure on a replacement asset prior to the CGT event relating to the compulsory acquisition of the Land, to be eligible for the rollover in Section 124-70 of the ITAA 1997 you will need to meet the conditions in subsection 124-75(3)(b) of the ITAA 1997. To meet the conditions of paragraph 124-75(3)(b) of the ITAA 1997, some of the expenditure relating to the acquisition of the replacement asset must be made on or before 30 June 2015 or if special circumstances can be established within such time as allowed by the Commissioner. Based on your circumstances, primarily due to the Dispute, it will not be possible for you to incur some expenditure on a replacement asset prior to 30 June 2015. As such, for you to be eligible for the rollover in section 124-70 of the ITAA 1997 special circumstances will need to be established. | Detailed Reasoning - Special Circumstances: The Commissioner's view as to the meaning of special circumstances is found in 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? Paragraph 3 of TD 2000/40 states that: What are 'special circumstances' depends on the facts of each particular case. Application of the expression is best illustrated by examples. Example 3, found in paragraph 6 of TD 2000/40, is as follows: 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. The Dispute is before the Supreme Court and you have been advised by your legal counsel that it will most likely take two years to resolve. Broadly the subject of the Dispute is over the quantum of the compensation relating to the compulsory acquisition of the Land. To acquire a suitable replacement asset for the Land the amount of compensation received as a result of the Dispute is an important determinative factor in selecting the replacement, because it will determine the type of property to be considered. It is not possible to start looking for a replacement asset until the amount of compensation is known. As such it is not feasible to incur some expenditure on a replacement asset until such time as the Dispute is resolved and the amount available to acquire a replacement asset is known. Based on the facts it is accepted that special circumstances do exist allowing the Commissioner to grant further time for you to incur some expenditure relating to a replacement asset for the Land. | Detailed Reasoning - Question 2: Subsection 124-75(3)(b) of the ITAA 1997 provides the Commissioner with the discretion to allow further time to acquire a replacement asset where there are special circumstances. As established in question 1 of this ruling special circumstances do exist. In your circumstances the following factors are considered relevant in determining the amount of additional time: • it will take approximately two years to resolve the Dispute, • the search for a replacement asset cannot reasonably start until the amount of compensation is known which will not happen until the Dispute is resolved and, and • once the amount of compensation is known it will take approximately 1 to 2 years to acquire a replacement asset. It is not appropriate for the Commissioner to allow an extension for an indefinite period of time under subsection 124-75(3)(b), however based on your circumstances the Commissioner will grant an extension of time up till 30 June 2019. This extension allows a period of two years to resolve the Dispute and a further two years to obtain a replacement asset.