Private ruling: CGT - replacement asset rollover
Date of advice: 7 July 2025
Published: 1 September 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 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 you an additional year to incur expenditure of a capital nature in replacing assets destroyed by fire? | A1: Yes.

Relevant facts and circumstances: The property is owned solely by you. The property was destroyed by fire in a previous year. You received an insurance payout. You made a capital gain. Construction will commence to build a new residential property to use as a rental property. The expected completion of the property is before then end of the next year. You have incurred costs to date to clear the debris and prepare the land for the rebuild. You have been working to make the site suitable to put a replacement asset on and gather the necessary registrations and contracts to start the build on the property. The process is as follows: • initial deposit receipted to commence preparing plans / land tests. • requested land information to ensure ABS have covered any land covenants before ordering initial plans. • ordered first sketch drawings from designer • first sketch drawings provided (custom plan) • Surveyor provided boundary re-establishment proposal for site survey. • Site survey information received • second drawings provided (with site plan and survey information) • enquired via email to the local council for confirmation of whether an council approval would be required for the new build. • draft construction drawings ordered (advised approx. 2 weeks for drawings to be prepared). • draft construction drawings received. Checked over • draft construction drawings sent to you. • meeting to review changes to make to plans • office closure (Christmas /New Years) • return to office. Followed up the local council for approval requirement • advised by town planner at the local council that approval is not required. • advised you of new home build's energy rating after initial energy rating assessment conducted. Provide options to change plans to meet energy rating (7 star) • provided updated pricing from draft plan changes. • construction plans ordered • construction plans received • construction plans were checked over & sent to you. Planning permit application sent to the local council • 'request for further information' received from the local council for permit application. • sent land report & site information requested from the local council • received correspondence for flood height requirements for the new home build (part of planning permit application process) • planning permit received from the local council. Permit advises we require an approval report (previously were advised this was not required so have no organised sooner). You query council regarding the miscommunication of why an approval is required after advising it was not. • after accepting we require a council approval before finalising plans. • report for council approval finalised. • Construction plans sent to management for pre-contract checks. Amendments required to plans - we checked the plans to ensure no other anomalies would crop up. • plans sent to designer to make final amendments. • plans received from designer & sent to management to approve & send to contract team. • plans with contract administration to prepare contracts. Building contracts expected Building contract was signed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 section 124-75

Reasons for decision: Summary: Roll-over relief for a destroyed CGT asset is available where the conditions outlined in Subdivision 124-B of the Income Tax Assessment Act 1997 (ITAA 1997) are met. Under subsection 124-70(1) of the ITAA 1997, an entity may be able to choose a replacement asset rollover if a CGT asset owned by the entity is destroyed per paragraph 124-70(1)(b) of the ITAA 1997. Subsection 124-75(1) and paragraph 124-75(2)(a) state that if you receive money for the CGT event happening you can choose to obtain a roll-over if you incur expenditure in restoring or replacing the destroyed asset. Subsection 124-75(3) 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. Subsection 124-75(4) of the ITAA 1997 requires that the replacement asset acquired must be used for the same or similar purpose as the taxpayer used the original asset. 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 determining whether the discretion will be exercised, the Commissioner considers the following factors: • Is there 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? • Is there 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)? • Will the extension unsettle people, other than the Commissioner, or established practices? • Will the extension be fair to people in like positions and the wider public interest? • Is there mischief involved? • What are the consequences of the decision? In this case, you received insurance proceeds due to the destruction of your rental property. However, you have been unable to rebuild a suitable replacement property within the 12-month period due to numerous delays including delays from the local government, difficulties obtaining tradespeople and obtaining appropriate permits which are all factors outside of your control. You have also provided evidence that you have actively tried to rebuild a replacement asset for the destroyed property by incurring expenditure for planning fees, hiring an architect and site preparation. 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. Therefore, the Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the ITAA 1997 to allow an extension of time to obtain rebuild to 30 June 20YY.