Private ruling: CGT - compulsory acquisition - extension of period to acquire a replacement asset
Published: February 2012
Ruling period: 31 July 2010 to 30 June 2011 | 31 July 2011 to 30 June 2012 | 31 July 2012 to 30 June 2013
Date scheme commenced: 1 July 2009

Ruling: Q1: Will the Commissioner exercise the discretion available under paragraph 124-75(3)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) to provide you with an extension of time until 30 June 2013 to acquire a replacement asset for the properties that you previously owned? | A1: 

Relevant facts and circumstances: The trustee for the trust owned several properties that it used as investment assets. During the 2009-10 financial year the state government compulsorily acquired these properties. The trust lodged a claim for compensation to the state government. Negotiations to settle the claim early failed. The matter is likely to be referred to Court to determine full and fair amount of compensation. The trust has now engaged professionals in preparation for the claim. Without the full compensation being determined and received, it is impossible for the trust to purchase replacement assets similar to the assets compulsory acquired.

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

Reasons for decision: Detailed Reasoning - Section 124-70 of the ITAA 1997: involuntary disposal of a CGT asset: Under subsection 124-70(1) of the ITAA 1997 you may be able to choose a roll-over if a capital gains tax (CGT) asset is: (a) compulsorily acquired by an Australian Government agency. If you receive money for the sale of the asset then further conditions are imposed by section 124-75 of the ITAA 1997. Under subsection 124-75(3) of the ITAA 1997 you must incur expenditure in acquiring another CGT asset no earlier than one year before the disposal happens and no later than one year after the end of the income year in which the disposal happens, or within such further time as the Commissioner allows in special circumstances. | Detailed Reasoning - Special circumstances: In determining whether special circumstances exist that will allow the Commissioner to extend the period for you to acquire a replacement asset regard must be had to Taxation Determination TD 2000/40. Taxation Determination TD 2000/40 provides guidelines for interpreting subsection 124-75(3) of the ITAA 1997, in particular what are special circumstances. Example 3 in TD 2000/40 provides an example of special circumstances including a 'protracted legal dispute with the authority over the quantum of the compensation' and in this instance the Commissioner would allow an extension. In addition, in determining if the discretion would be exercised the Commissioner has considers the following factors: § there should be evidence of an acceptable explanation for the period of 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. | Detailed Reasoning - Application to your circumstances: The trust's circumstances are similar to those found in TD 2000/40 as the amount of compensation for the compulsory acquisition of the trust's assets is yet to be determined and it would be difficult for the trust to acquire a replacement asset. This an acceptable explanation for the period of extension requested. The Commissioner will exercise his discretion and extend the time the trust has to purchase a replacement asset until 30 June 2013. If the legal dispute continues to make it impossible for the trust to acquire a replacement asset before 30 June 2013, the trust is able to apply for an additional extension.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | 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'.