Private ruling: Commissioner's discretion - replacement asset
Date of advice: 13 August 2024
Published: 23 September 2024
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: X April 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time to 30 June 2025 to acquire a replacement asset? | A1: Yes.

Relevant facts and circumstances: Individual A is the trustee Trust 1. Individual B is a director of Entity 1 which is the trustee of Trust 2. Trust 1 and Trust 2 jointly owned the Property. On X December 20XX a Government Department made an offer of early, compulsory acquisition. Trust 1 and Trust 2 accepted the offer and a contract of sale was signed. The property had a tenant who leased and operated a business on the property. The tenant had not obtained the necessary council approvals for their renovations which included a new mezzanine and bathroom. This caused delays as the Government Department would not settle until this matter was resolved. A notice of appeal was lodged between the business tenant and the City Council. The Court handed down judgement on the appeal. A second appeal was lodged to the Court by the business tenant against the City Council. At a later time, the business tenant withdrew their appeal and a notice of discontinuance was handed down. Simultaneously the tenancy was ended. Sometime later, the tenant vacated the premises and the issues with the property were resolved. The property settled, almost a year after the contract for disposal was signed.

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 124-75(3)(b)

Reasons for decision: Summary: Roll-over relief for the compulsory acquisition of a CGT asset is available where the conditions outlined in Subdivision 124-B of the ITAA 1997 are met. An entity may be able to choose a replacement asset rollover if a CGT asset owned by the entity is compulsorily acquired by an Australian government agency as per paragraph 124-70(1)(a) of the ITAA 1997. A replacement-asset rollover allows you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens. If you receive money for a CGT event happening, you can choose to obtain a roll-over if you incur expenditure in acquiring another CGT asset. [1] You must incur expenditure no earlier than 12 months before the event or 12 months after the event unless the Commissioner grants extra time. [2] The replacement asset acquired must be used for the same or similar purpose as the taxpayer used the original asset. [3] The Commissioner provides guidance in Tax Determination 2000/40 Income tax: capital gains: what are 'special circumstances' for the purposes of subsection 124-75(3) of the ITAA 1997? Specifically, example 3 which provides: 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. | Detailed Reasoning - Application to your circumstances: You received compensation for the property acquisition. However, due to delays caused by legal issues, you did not receive the funds until settlement which almost a year after contract of sale was signed. As you did not have the funds to expend, you have been unable to secure a suitable replacement asset within the 12-month period. Therefore, given that there are special circumstances that contributed to a delay in purchasing a suitable replacement property, the Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow an extension of time to obtain a replacement asset. 1 ITAA 1997 subsection 124-75(1) and paragraph 124-75(2)(a). 2 ITAA 1997 subsection 124-75(3). 3 ITAA 1997 subsection 124-75(4).