Private ruling: Replacement Asset
Published: February 2012
Ruling period: 30 June 2006
Date scheme commenced: 1 July 2005

Ruling: Q1: Will the Commissioner exercise his discretion to extend the replacement asset period under section 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) until 1 July 2014? | A1: No

Relevant facts and circumstances: In a correspondence dated XX 2011, you request the Commissioner extend the time limit to acquire a replacement asset. The business was sold in 2005, and the director was prohibited from engaging in competition with the purchaser of the business under a restraint clause. In a fax dated XX 2009 you stated that the prohibition was until XX 2010. Upon the cessation of the restraint period, the company was to invest the balance of funds into a new business entity. You consider that an extension of time to rollover the proceeds from the sale of the business was granted until 2011 by an ATO officer in XX 2005. It was deemed reasonable that you would be allowed a twelve month period after the cessations of the restraint of trade period to rollover the proceeds into a new business (until 1 July 2011). It was also considered prejudicial and detrimental to you if they were to rollover the sale proceeds into a new business and subsequently incurred substantial damages as a result of the breach of restraint of trade. There is no record of a discretion decision on ATO systems of an extension of time being granted in XX 2005. As the result of an audit, your 2005-06 assessment was amended to exclude the small business rollover concession. You have objected to the amended assessment. You now request that the Commissioner extend the replacement asset period to 1 July 2014. The objection decision for the 2005-06 financial year was disallowed.

Relevant legislative provisions: Section 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) | Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) | paragraph 104-185(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) subsection 104-197(1) of the Income Tax Assessment Act 1997 (ITAA 1997) | subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) | subsection 104-197(5) of the Income Tax Assessment Act 1997 (ITAA 1997) | subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997)

Reasons for decision: Detailed Reasoning - Introduction: You applied the small business roll-over concessions under Division 152 of the ITAA 1997 in respect of the sale of the business. You were unable to acquire a replacement asset within the replacement asset period. | Detailed Reasoning - Replacement asset period: The replacement asset period is defined by paragraph 104-185(1)(a) of the ITAA 1997 as being the time starting one year before, and ending two years after, the happening of the last CGT event in the income year for which the small business roll-over is obtained. | Detailed Reasoning - Extension of time to acquire a replacement asset: Under subsection 104-197(1) CGT event J5 happens if you chose a small business roll-over under subdivision 152-E and have not acquired a replacement asset by the end of the replacement asset period. The Commissioner may pursuant to subsection 104-190(2) of the ITAA 1997, exercise his discretion for the replacement asset period to be extended as provided by subsection 104-197(5) of the ITAA 1997. | Detailed Reasoning - Commissioners' discretion: In determining if the discretion to allow a period longer than two years from the relevant CGT event would be exercised, the Commissioner has considered the following factors: · whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension · whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension · whether there is any unsettling of people, other than the Commissioner, or of established practices · fairness to people in like positions and the wider public interest · whether there is any mischief involved, and · the consequences of the decision. You state the director was prohibited from replacing the asset because under the restraints clause they were unable to engage in competition with the purchaser. The restraints clause was valid until XX 2010. This clause does not prohibit you from replacing the asset with a business that does not compete with the previous business. You consider the previous extension of time to rollover the proceeds was granted until July 2011 from July 2006 being 5 year period by an ATO officer in XX 2005. There is no evidence on our system that this discretion was granted by the commissioner and no evidence was provided by you. There is no evidence that you were actively seeking a replacement asset within the period. If the extension of time was allowed it would be prejudice to the commissioner. Allowing a 4 year extension of time in addition to the 5 year extension of time that was said to be previously allowed but no evidence of, would not be fair to people in like positions and the wider public interest. As stated in your objection decision, you have failed the basic conditions in subdivision 152-A of the ITAA 1997 to choose the rollover, as such disallowing the extension of time does not change the application of the CGT small business concessions. The commissioner is unwilling to grant an extension of time to July 2014 as you have failed to demonstrate your reasons for an extension of time request. To allow a further 4 year period in addition to the previous 5 years, effectively being 9 years to acquire a replacement asset is not considered reasonable in the circumstances. Consequently, the Commissioner will not grant your request to extend the time period to July 2014 to acquire a replacement asset.

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