Private ruling: Income Tax: Capital gains - compulsory acquisition roll-over - extension of time
Published: April 2013
Ruling period: Year ended 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: On or after 1 March 2011

Ruling: Q1: Will the Commissioner allow you further time under paragraph 124-75(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to include a period of time of earlier than one year before your original asset was compulsory acquired? | A1: Yes | Q2: Will the Commissioner allow you further time until day, month 20XX under paragraph 124-75(3)(b) of the ITAA 1997 to acquire another asset or assets to replace your original asset that was compulsory acquired? | A2: Yes

Relevant facts and circumstances: The taxpayer held an investment property acquired after 19 September 1985 (the property). In 200Y the taxpayer was advised by phone that an Australian government agency (the agency) had declared an interest in their property for a public purpose. The taxpayer received a letter from the agency in 20ZZ confirming their intention to acquire the property either by way of negotiated purchase (private treaty) or compulsory acquisition under the provisions of the Land Acquisition (Just Terms Compensation) Act 1991. The taxpayer received a letter in 20ZZ from the agency regarding the valuation of the property. The Compensation Report and Assessment of Value submission was attached. The taxpayer received a letter in 20ZZ from the agency agreeing to an amount of compensation for the compulsory acquisition of the property. The taxpayer received a further letter in 20ZZ from the agency proposing to reduce the formal Acquisition Notice period from the standard 90 days to 30 days. In 20ZZ the Section 30 Agreement (Deed of Agreement for Compulsory Acquisition of Land, Release and Indemnity) was signed by the taxpayer and the agency subject to Ministerial and Director-General approval. The taxpayer received the amount of compensation in cash from the agency in 20VV. The taxpayer realised a capital gain on the property. The resumption took place 14 months after the original notice of intent to compulsory acquire the property. The length of time between the initial receipt of notice of compulsory acquisition and the date of resumption was outside the taxpayer's control. The delays impacted on the ability of the taxpayer to commence negotiations, and/or enter into a contract for the purchase of replacement assets (property) until such time as the resumption was concluded and the proceeds known with certainty. The time available to the taxpayer of 15 months from the date of resumption to relevant year was not sufficient time to acquire replacements assets equal to the capital gain achieved. The delays also resulted in an intended replacement asset falling outside the earliest timeframe by approximately three months. This property was acquired by the taxpayer in 200Y shortly before the notice was received in early 20ZZ. In the 20VV financial year the taxpayer acquired a number of other properties which were deemed to be unsuitable to use as replacement assets by the taxpayer and both have since been disposed of in full or part. The taxpayer purchased another number of properties in the relevant financial year which were deemed to be suitable to use as replacement assets by the taxpayer under the roll-over provisions. The taxpayer purchased another property in the subsequent financial year which was deemed to be suitable to use as a replacement asset by the taxpayer under the roll-over provisions. The taxpayer is currently negotiating the purchase of other properties in relation to the subsequent and future financial years which have been deemed to be suitable to use as replacement assets by the taxpayer under the roll-over provisions. The timeframe specified for the taxpayer to find a replacement asset(s) is month 20VV until the relevant financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 124-70 | Income Tax Assessment Act 1997 subsection 124-75(1) | Income Tax Assessment Act 1997 subsection 124-75(2) | Income Tax Assessment Act 1997 subsection 124-75(3)


Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax. | Summary: The Commissioner will allow you further time under paragraph 124-75(3)(a) of the ITAA 1997 to include a period of time of earlier than one year before your original asset was compulsory acquired. | Detailed reasoning: Section 124-70 of the ITAA 1997 allows capital gains tax (CGT) roll-over relief if an asset owned by a taxpayer is compulsorily acquired by an Australian government agency. 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 roll-over. | Under subsection 124-75(2) of the ITAA 1997 the owner of the asset must incur expenditure in acquiring another CGT asset. In accordance with paragraph 124-75(3)(a) of the ITAA 1997 at least some of the expenditure must be incurred no earlier than one year before the event happens, or within such further time as the Commissioner allows in special circumstances. | If a replacement asset is not acquired, a capital gain or capital loss must be disclosed in the income year in which the Australian government agency payment is received. If a replacement asset is acquired, the roll-over provisions may apply. | Taxation Determination TD 2000/40 provides some guidance as to what are special circumstances for the purposes of subsection 124-75(3) of the ITAA 1997. | The determination does not provide any specific criteria to satisfy the meaning of special circumstances. This will depend on the facts of each particular case. | In your case, an extension has been sought on the basis that you experienced lengthy delays outside your control which resulted in the actual compulsory acquisition of your original property not taking place until 20ZZ, some 14 months after the proposed acquisition notice was first received in 20YY. This meant that a property you had acquired earlier fell outside the earlier timeframe to incur some of the expenditure by approximately three months. | Based on these facts, it is considered that special circumstances do exist to allow you further time for expenditure to be incurred on replacement assets. Consequently the Commissioner will allow you further time to the earlier date. | Summary: The Commissioner will allow you further time until 31 December 2013 under paragraph 124-75(3)(b) of the ITAA 1997 to acquire another CGT asset or assets to replace your original asset that was compulsory acquired. | Under subsection 124-75(2) of the ITAA 1997 the owner of the asset must incur expenditure in acquiring another CGT asset. In accordance with paragraph 124-75(3)(b) of the ITAA 1997 at least some of the expenditure must be incurred no later than one year after the end of the income year in which the event happens, or within such further time as the Commissioner allows in special circumstances. | In your case, an extension has been sought on the basis that you have been unable to locate one large property that suited your purposes. As a result you have proceeded to acquire several smaller properties which have required additional time and resources. From the information provided you are still in the process of acquiring additional assets. | Based on these facts, it is considered that special circumstances do exist to allow you further time for expenditure to be incurred on replacement assets. Consequently, the Commissioner will allow you further time.