Private ruling: Small business concessions
Date of advice: 13 June 2016
Published: July 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period by two years? | A1: No.

Relevant facts and circumstances: You disposed of an asset. In your Income Tax Return you included a capital gain in respect of the shares and the replacement asset rollover was chosen. You have not been successful in acquiring an eligible replacement asset within the requisite two year period. You attempted to acquire an eligible replacement asset soon after the initial payment was received however an agreement did not proceed. For approximately the next six months you continued searching for a replacement asset without success. Your role has required you to spend time overseas which has prevented you from devoting the necessary effort to acquiring a suitable replacement asset.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 104-185(1) | Income Tax Assessment Act 1997 Subsection 104-190(2)

Reasons for decision: Summary: If a taxpayer makes a capital gain from a CGT asset and satisfies all of the basic conditions in Subdivision 152-A of the ITAA 1997, the taxpayer may choose small business roll-over in Subdivision 152-E of the ITAA 1997. There are roll-over conditions that must be satisfied by the end of the replacement period, if the roll-over conditions are not met within the replacement asset period, the gain will become assessable. One such condition, specified in subsection 104-185(1) of the ITAA 1997, requires a taxpayer to acquire a replacement asset within a period starting one year before, and ending two years after the date of disposal of the original asset. However, subsection 104-190(2) of the ITAA 1997 states that the Commissioner may exercise his discretion to extend this time limit. The relevant factors in determining whether to extend the replacement asset period are: • 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 • a consideration of the consequences. The Commissioner will generally only exercise his discretion where a taxpayer can demonstrate that they have actively sought to comply with their tax obligations, but were not able to comply through no fault of their own. In your case, you disposed of your interest in a business and chose to defer the capital gain remaining under the small business roll-over concession. You have not been able to acquire a replacement asset within the requisite two year period. After considering both the relevant factors for determining whether to exercise the Commissioner's discretion and the specific circumstances of this case, we consider that your circumstances do not warrant an extension of time. This decision is based on the following reasons: • In your case it is difficult to say there is evidence of an acceptable explanation for the period of extension requested. Although you have indicated that you spent approximately six months searching for possible replacement businesses, you have not provided any documented attempts to acquire a replacement asset since this time. Additionally, you have stated that working overseas has delayed your ability to acquire a replacement asset. These situations are not considered to be circumstances beyond your control which would prevent you from finding a replacement asset. • To allow an extension of time in your case is likely to unsettle people for the reasons discussed above, that is, lack of evidence of an acceptable explanation. • While there is no suggestion of mischief in this case, it could not be considered fair to people in like positions to allow you an extension of time. Another application with similar circumstances would be denied. Therefore, the Commissioner will not exercise the discretion under subsection 104-190(2) of the ITAA 1997 to extend the period for acquiring the replacement asset.