Private ruling: Capital Gains Tax
Date of advice: 29 August 2016
Published: October 2016
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise his discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to further extend the time required to obtain a replacement asset for a compulsorily acquired asset? | A1: Yes.

Relevant facts and circumstances: You owned an investment property. The property was compulsory acquired by the by a government agency in the relevant financial year. You had previously been in discussions with the government agency regarding whether or not the property would be compulsory acquired as part of the councils draft plan for a future development. You received a resumption notice for the property however you were advised that the document was not legally valid. The government agency filed a new resumption notice. The government agency made a verbal offer of compensation to you of which you declined. You received compensation for the property in the subsequent financial year. You did not sign any legal documents until the subsequent financial year. You have been actively looking for a property but have been unable to find a suitable property yet. You also had a number of personal problems which has contributed to the delay in finding a suitable replacement property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 124-70, | Income Tax Assessment Act 1997 Section 124-75, | Income Tax Assessment Act 1997 Section 124-85.

Reasons for decision: Summary: Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) explains the circumstances when a rollover is available for an asset that is compulsorily acquired, lost or destroyed. If you receive money as a result of the compulsory acquisition, you can only choose a rollover if you incur expenditure in acquiring another CGT asset. Under subsection 124-75(3) of the ITAA 1997 you must incur expenditure in acquiring another CGT asset no earlier than one year before the disposal happens and no later than one year after the end of the income year in which the disposal happens, or within such further time as the Commissioner allows in special circumstances. In determining whether special circumstances exist that will allow the Commissioner to extend the period for you to acquire a replacement asset regard must be had to Taxation Determination TD 2000/40. TD 2000/40 provides guidelines for interpreting subsection 124-75(3) of the ITAA 1997, in particular what constitute special circumstances. In determining if further time will be allowed by the Commissioner the following factors are considered: • 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, and • a consideration of the consequences. Application to your circumstances A government agency has compulsory acquired your property in the relevant financial year. Applying the provisions of section 124-75 of the ITAA 1997, you would ordinarily have until a point in time to purchase a replacement property. You have sought an extension of time to acquire a replacement asset. The consequences of granting the extension of time are that you will be eligible for roll-over concessions, and thus the capital gain that would have arisen will be disregarded to the extent set out in subsection 124-5(2) of the ITAA 1997. The purpose of subdivision 124-B of the ITAA 1997 is to allow rollover concessions in special cases, to defer the making of a capital gain from one CGT event until a later CGT event happens. In determining whether special circumstances exist in your case which warrants the granting of an extension of time we have considered the facts underlying your request and concluded that special circumstances do exist. You have explained that you have been delayed in the acquisition of a suitable replacement because the compensation received as part of the acquisition of the property occurred sometime after the government agency took the title to the property. You have also had multiple personal issues that have contributed to the delay in finding a suitable replacement property. In your particular circumstances, we consider that you have provided an acceptable explanation for the delay in acquiring a replacement asset and we would regard it as fair and equitable to provide you with an extension of time to acquire a suitable replacement. There appears to be no prejudice to the Commissioner or any other parties in granting this request and there does not appear to be any mischief involved. After considering these circumstances, the Commissioner will allow further time under subsection 124-75(3) of the ITAA 1997. The existing time limit that would require the replacement asset to be purchased no later than then a particular date has now been extended to a further date. Please note that, due to the amount of time since the original asset was compulsorily acquired, it is unlikely that further extensions would be granted.