Private ruling: CGT - compulsory acquisition - Commissioner discretion - CGT rollover - expenditure - before
Date of advice: 21 July 2025
Published: 15 September 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in paragraph 124-75(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow the Trust to have incurred expenditure in acquiring the Replacement Property earlier than one year before the other Original Properties were compulsorily acquired by the State Government? | A1: Yes

Relevant facts and circumstances: The Trust is a discretionary trust. The Trust owned 2 adjacent properties located in Australia (Original Properties). The Trust has 2 individuals as trustees (Trustees). The 2 individuals in their capacity as trustees for the Trust held legal ownership as registered proprietors of the Original Properties. The Trust leased the Original Properties to one of the Trustees who used them to conduct a business as a sole trader. The Trust was advised of the prospect of a compulsory acquisition by a State Government Department (State Government) in MM YYYY. A formal meeting with the State Government officials took place on DDMMYYYY at which time the officials discussed the immediate need to look for an alternative premises. The initial notification from the State Government stated that a formal property acquisition process was not required to commence until mid to late 20XX. It was anticipated that the Original Properties would be acquired around MMYYYY. The local MP met with property owners around the area on DDMMYYYY where they were informed that the project was going ahead as scheduled without any delay and all the properties would be acquired as planned. There was strong competition for commercial premises in that area at that time. In anticipation of the compulsory acquisition the Trust acquired a Replacement Property near the Original Properties before the compulsory acquisition of the Original Properties. The Trust purchased the Replacement Property with an intention that it would be a replacement asset for the Original Properties designated for compulsorily acquisition by the State Government. The Replacement Property is leased to the Trustee to conduct a business as a sole trader. The Replacement Property is used as an investment asset in a similar way as the Original Properties acquired by the State Government. On DDMMYYYY the property located in Australia was compulsorily acquired by the State Government. On DDMMYYYY the adjacent Original Property was compulsorily acquired by the State Government.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-10(2) | Income Tax Assessment Act 1997 subsection 104-10(6) | Income Tax Assessment Act 1997 Subdivision 124-B | Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 paragraph 124-70(1)(a) | Income Tax Assessment Act 1997 subsection 124-70(2) | Income Tax Assessment Act 1997 subsection 124-75(2) | Income Tax Assessment Act 1997 subsection 124-75(3) | Income Tax Assessment Act 1997 paragraph 124-75(3)(a) | Income Tax Assessment Act 1997 subsection 124-75(4) | Income Tax Assessment Act 1997 subsection 124-75(5) | Income Tax Assessment Act 1997 subsection 124-75(6) | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated. The Commissioner will exercise the discretion in paragraph 124-75(3)(a) to allow the Trust to have incurred expenditure in acquiring the Replacement Property on DDMMYYYY, more than one year before the Original Properties were compulsorily acquired by the State Government. | Detailed Reasoning - Detailed reasoning: CGT event A1 happens if you dispose of a CGT asset. Under subsection 104-10(2) you dispose of a CGT asset if a change of ownership occurs whether because of some act or event or by operation of law. CGT event A1 is triggered as a result of the acquisition of a CGT asset by another entity under a power of compulsory acquisition. The time that CGT event A1 happens is determined by subsection 104-10(6) which states: If the asset was acquired from you by an entity under a power of compulsory acquisition conferred by an Australian law or a foreign law, the time of the event is the earliest of: (a) when you received compensation from the entity; or (b) when the entity became the asset's owner; or (c) when the entity entered it under that power; or (d) when the entity took possession under that power. Subdivision 124-B contains a roll-over for assets compulsorily acquired, lost or destroyed. Section 124-70 describes different events in respect of which a roll-over may be available. Paragraph 124-70(1)(a) allows an entity to choose a roll-over if the CGT asset that the entity owns is compulsorily acquired by an Australian government agency (defined in subsection 995-1(1) to include a 'State or an authority of a State'). To be eligible for a roll-over, you must receive either money or another CGT asset or both as compensation for the event happening (subsection 124-70(2)), and if you receive money you must incur expenditure in acquiring another CGT asset (except a depreciating asset whose decline in value is worked out under Division 40 or deductions for which are calculated under Division 328) (subsection 124-75(2)). Subsection 124-75(3) further states that at least some of the expenditure must be incurred: (a) no earlier than one year, or within such further time as the Commissioner allows in special circumstances, before the event happens; or (b) no later than one year, or within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens. For the purposes of subsection 124-75(3), 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? provides guidance on interpreting the expression 'special circumstances', stating 'by its nature is incapable of a precise or exhaustive definition' and 'depends on the facts of each particular case'. There are no examples of purchases of replacement assets prior to compulsory acquisition. In determining whether the discretion will be exercised, the Commissioner also considers the following factors: • there should be evidence of an acceptable explanation for the period of the 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 • 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. A further requirement for the roll-over is that the replacement asset acquired must be used for the same or similar purpose as the original asset. The special rules in subsection 124-75(4) state: If just before the event happened the original asset: (a) was used in your business; or (b) was installed ready for use in your business; or (c) was in the process of being installed ready for use in your business; (d) the other asset must be used in the business, or be installed ready for use in the business, for a reasonable time after you acquired it. Otherwise, you must use the other asset (for a reasonable time after you acquired it) for the same purpose as, or for a similar purpose to, the purpose for which you used the original asset just before the event happened. Additionally, the replacement asset: • cannot become an item of trading stock just after the acquisition or be a depreciating asset whose decline in value is worked out under Division 40 or deductions for which are calculated under Division 328 (subsection 124-75(5)); and • cannot become a registered emissions unit held just after acquisition (subsection 124-75(6)). Application to the circumstances The Trust leased the Original Properties to one of the trustees for use in their business as a sole trader. The Trust received initial notification from the State Government in 20XX advising that the Original Properties would be compulsorily acquired. The Original Properties were acquired by the State Government on DDMMYYYY and DDMMYYYY respectively, and the Trust received compensation. CGT event A1 happened to the Trust upon its disposal of the Original Properties in the 20XX income year. Having received initial notification of the compulsory acquisition (in 20XX), the Trust acquired a similar commercial property (the Replacement Property) on DDMMYYYY. This was more than one year before the CGT event happened. There are no legislative provisions which provide guidance as to what may constitute special circumstances for the purposes of subsection 124-75(3). These depend on the facts of each case. The Trust has stated that: • The Trust incurred expenditure to purchase the Replacement Property when it did as it was uncertain that a suitable alternative option would become available in the existing location due to strong competition for property in the area at that time. • Negotiations with the State Government in relation to the Original Properties started in late 20XX, and the Trust anticipated the Original Properties would be compulsorily acquired around January 20XX. • The Replacement Property was acquired with an intention it be a replacement property to use for a similar purpose as the Original Properties. • The Replacement Property is being used for a similar purpose as the Original Properties. The Commissioner is satisfied, on the basis of these 'special circumstances', that it was not unreasonable for the Trust to anticipate that the timing of the CGT event A1 in respect of the compulsory acquisition of the Original Properties would be finalised within one year of having settled on (and incurred expenditure on the acquisition for) the Replacement Property, and there is thus an acceptable explanation for the extension requested. The Commissioner is also satisfied, under these circumstances, that the granting of the extension requested by the Trust is fair and equitable, will not prejudice the Commissioner or unsettle any established practices, and that there is no evidence of mischief involved. The Commissioner therefore exercises his discretion under paragraph 124-75(3)(a) to allow the Trust to have incurred expenditure in acquiring the Replacement Property earlier than one year to DDMMYYYY.