Private ruling: Compulsory acquisition
Date of advice: 13 August 2025
Published: 20 October 2025
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: X date

Ruling: Q1: Will the Commissioner exercise the discretion under section 124-75 of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time required to 30 June 2026 for the Taxpayers to incur expenditure to obtain a replacement asset for a compulsory acquired asset? | A1: Yes

Relevant facts and circumstances: The Taxpayers acquired a property (the Property) that was used as a commercial property investment. An Australian government agency (the Authority) issued the Taxpayers a 'Notice of Intention' to acquire the Property. The Property was compulsorily acquired by an (the Authority). The Authority made an initial offer of compensation to the Taxpayers in respect of the acquisition. The Taxpayers served a Response to Offer on the Authority. Following submission of the Taxpayers claim for compensation, two 'without prejudice' valuers' conferences were held in relation to the discrepancy in the amount offered and the amount claimed in relation to the market value of the Subject Land. The conferences were held during the income year ending 20XX. Following the valuers' conferences, the Authority served on the Taxpayer a statement in writing replying to the claim (the Reply). In the Reply, the Authority offered the Taxpayer a revised amount. To date the claim has not been finalised. Replacement Asset Acquisition In trying to secure a replacement property, the Taxpayers have considered several potential replacement assets. To assist them in replacing the asset, the Taxpayers engaged with Buyers Advocates to provide buyer advocacy services. The Taxpayers have now formally appointed a buyer's advocate. Several properties have been considered but one is yet to be secured. It is expected that a replacement property will be secured in the coming months, and additional costs will be incurred in securing a replacement property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 124-B | Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 subsection 124-70(1) | Income Tax Assessment Act 1997 subsection 124-70(2) | Income Tax Assessment Act 1997 section 124-75 | 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)(b) | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: The Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to extend the time required to 30 June 20XX to incur expenditure to obtain a replacement asset for the Property that was compulsory acquired. | Detailed Reasoning - Detailed reasoning: Subdivision 124-B of the 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 capital gains tax asset. Under subsection 124-70(1) of the ITAA 1997, an entity may be able to choose a replacement asset rollover if a Capital Gains Tax (CGT) asset owned by the entity is compulsorily acquired by an Australian government agency. Subsection 995-1(1) of the ITAA 1997 defines an Australian government agency as a Commonwealth, a State or a Territory, or an authority of Commonwealth or of a State or Territory. A further requirement is that the owner of the original asset must receive money or another CGT asset or both for the CGT event to be eligible for a rollover (subsection 124-70(2) of the ITAA 1997). Should the owner of the original asset receive money, section 124-75 of the ITAA 1997 then provides further requirements which must be satisfied if only money is received for the event happening. Subsection 124-75(2) of the ITAA 1997 requires that the owner of the asset must incur expenditure in acquiring another CGT asset. Paragraph 124-75(3)(b) of the ITAA 1997 requires the entity to incur at least some of the expenditure in acquiring this replacement CGT asset 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. Special Circumstances In determining whether special circumstances exist for the Commissioner to extend the period in which to acquire a replacement asset, Taxation Determination TD 2000/40 Income tax: capital gains : what are 'special circumstances' for the purposes of subsection 124-75(3) of the ITAA 1997? provides guidance on interpreting subsection 124-75(3) of the ITAA 1997, in particular what could be considered 'special circumstances'. TD 2000/40 outlines that the expression 'special circumstances' in the context of subsection 124-75(3) of the ITAA 1997 by its nature is incapable of a precise or exhaustive definition. What constitute 'special circumstances' depends on the facts of each particular case. Some examples of special circumstances are provided in TD 2000/40. In particular, Example 3 in TD 2000/40 states: 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. 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. • 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 Under paragraph 124-75(3)(b) of the ITAA 1997, the Taxpayers would need to incur some of the expenditure no later than one year after the end of the income year. However, due to the lack of certainty as to the final compensation, this has delayed the ability of the Taxpayers to search for and acquire an appropriate replacement asset. On these facts, we would accept that there are special circumstances to allow further time to incur expenditure to acquire a replacement asset. Furthermore, by granting this extension of time to acquire replacement asset: • there does not appear to be any prejudice to the Commissioner or any other parties. • there is no unsettling of people or of established practices. • there does not appear to be any mischief involved in this case; and • the Commissioner considers it to be fair to people in like positions and the wider public interest. Accordingly, the Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to extend the time until 30 June 20XX, for the Taxpayers to incur expenditure to acquire a replacement asset.