Private ruling: Extension of the 2 year period to purchase a replacement asset
Date of advice: 29 June 2017
Published: November 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner use his discretion to extend the replacement asset period pursuant to subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of the small business capital gains tax (CGT) replacement asset roll-over relief to 20XX? | A1: Yes.

Relevant facts and circumstances: You sold a business in the 2013-14 financial year. It was always your intention to purchase a new business. The business you were intending to purchase was a transport business. Prior to being able to purchase your new business you had to undergo a course for industry which was completed in early 20AA. Around this time you also obtained a certificate of Accreditation. This is a requirement to enter this industry. Also during this time you sought an appropriate business to purchase. You were in regular contact and engaged in many hours conversation with operators in the area for opportunities to purchase from them. You corresponded with both Person A and Company A. Person A expressed interest but wasn’t ready to sell yet. They said they would possibly be ready in XX months. Company A expressed interest as well after many discussions. Discussions with Company A dragged on for some time as he was dealing with complex issues of their own. Eventually the discussion progressed and Company A agreed to the sale. In 20AA you contacted Company A and confirmed the original purchase price and date of sale for the asset. In late 20AA finance quotes were obtained from the Industry body. The contract of sale was prepared by solicitors in early 20BB. You paid your deposit to Company A in early 20BB. The deposit was $XXX. Your loan facility was approved for $XXX in mid-20BB. Just prior to signing the contract Company A changed their mind about selling their asset and contracts. You had no warning that this was going to occur. The contract fell through and your deposit was refunded. Soon after this occurred, you engaged Person A again to gauge their interest in selling their business. You are currently negotiating with Person A as they are expressing their interest to sell. Their current asking price is $XXX. Your loan facility has been extended and will be used in conjunction with funds from the sale of your previous business. You will continue to move forward with your negotiations and be ready when Person A draws up a contract of sale. During this time you have maintained your certifications and updated them as necessary.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 104-190(2) | Income Tax Assessment Act 1997 Subdivision 152-A

Reasons for decision: Summary: The small business roll-over allows you to defer the capital gain made from a CGT event if you acquire one or more replacement assets and satisfy certain conditions. The conditions which must be met to obtain relief are set out in Subdivision 152-A of the ITAA 1997. You can choose the roll-over even if you have not yet acquired a replacement asset. However CGT event J5 happens if, by the end of the replacement asset period, you do not acquire a suitable replacement asset which is an active asset. CGT event J6 happens if, by the end of the replacement asset period, the cost base (first, second and fourth elements only) of the replacement asset(s) you acquired is less than the capital gains disregarded under the roll-over provisions. The replacement asset period starts one year before, and ends 2 years after, the last CGT event in the income year for which you obtain the roll-over. Subsection 104-190(2) provides that the Commissioner may extend the replacement asset period. You had signed a contract for sale on an appropriate business. However, due to unforeseen circumstances, the contract fell through and the seller withdrew their offer. You were then unable to acquire a suitable replacement business until inside the two year period. In determining if the discretion would be exercised the Commissioner has considered the following factors: ● evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension) ● prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension) ● unsettling of people, other than the Commissioner, or of established practices ● fairness to people in like positions and the wider public interest ● whether any mischief is involved, and ● consequences of the decision. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 104-190(2) and allow an extension of time until 31 December 2017.