Private ruling: CGT- Request for extension of time to acquire replacement asset
Published: June 2013
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20YY | Year ended 30 June 20ZZ
Date scheme commenced: 1 July 20WW

Ruling: Q1: Will the Commissioner exercise his discretion to extend the replacement asset period under subsection 104-197(5) of the Income Tax Assessment Act 1997 (ITAA 1997) until the date requested? | A1: Yes

Relevant facts and circumstances: The taxpayer is requesting an extension of time to acquire a replacement asset for a capital gain made on the sale of business during the year ended 30 June 20VV. The taxpayer has advised that it satisfies the requirements to access the small business concessions. The taxpayer would ordinarily have two years to acquire the replacement asset, but due to various factors, the taxpayer has not been able to acquire a replacement asset. The taxpayer is requesting for 18 months extension of the time-period to the requested date. The factors that have prevented the taxpayer from acquiring a replacement asset include: (a) difficulty in finding an alternative profitable business or profitable active asset in the current economic climate; and (b) significant personal involvement of the key shareholders/directors in alternative businesses that have needed focus to keep profitable and afloat. Contact with the agent to clarify the second factor, assures that the shareholder/director is actively looking for a replacement asset and is well aware that the time is running out to acquire a replacement asset. The shareholder/director just has not found one that is suitable due to the economic climate. Even though the focus is on other business investments, the shareholder/director is actively looking out for a viable investment as a replacement asset. The shareholder/director is involved in many businesses and investments and is keen to continue seeking profitable ventures.

Relevant legislative provisions: Income Tax Assessment Act 1997 paragraph 104-185(1)(a) | Income Tax Assessment Act 1997 subsection 104-190(2) | Income Tax Assessment Act 1997 subsection 104-197(1) | Income Tax Assessment Act 1997 subsection 104-197(5) | Income Tax Assessment Act 1997 Subdivision 152-E | Income Tax Assessment Act 1997 section 152-415

Reasons for decision: Summary: The relevant factors have been considered against the taxpayer's circumstances and it is considered that the taxpayer has provided a reasonable and acceptable explanation for the delay in acquiring a replacement asset. Allowing an extension of time would not prejudice the Commissioner, nor is it unfair to other people in similar positions. As a result, the Commissioner will exercise his discretion under subsection 104-197(5) of the ITAA 1997 to extend the time period to acquire a replacement asset to the date requested. | Detailed Reasoning - Detailed reasoning: Subdivision 152-E of the ITAA 1997 provides the small business roll-over as part of the small business CGT relief provisions in respect of the sale of a business. The taxpayer is of the opinion that a replacement asset will not be acquired within the replacement asset period. | Detailed Reasoning - Replacement asset period: The replacement asset period is defined by paragraph 104-185(1)(a) of the ITAA 1997 as being the time starting one year before, and ending two years after, the happening of the last CGT event in the income year for which the small business roll-over is obtained. | Detailed Reasoning - Extension of time to acquire a replacement asset: Under subsection 104-197(1) of the ITAA 1997, CGT event J5 happens if a taxpayer chose a small business roll-over under Subdivision 152-E of the ITAA 1997 and have not acquired a replacement asset by the end of the replacement asset period. The Commissioner may pursuant to subsection 104-190(2) of the ITAA 1997, exercise his discretion for the replacement asset period to be extended as provided by subsection 104-197(5) of the ITAA 1997. | Detailed Reasoning - Commissioner's discretion: In determining if the discretion to allow a period longer than two years from the relevant CGT event would be exercised, the Commissioner has considered the following factors: · whether there is 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; · whether there is 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; · whether there is any unsettling of people, other than the Commissioner, or of established practices; · fairness to people in like positions and the wider public interest; · whether there is any mischief involved; and · the consequences of the decision. These factors as they relate to the taxpayer are discussed below. The explanation for requesting an extension of time is as follows: · difficulty in finding an alternative profitable business or profitable active asset in the current economic climate; and · significant personal involvement of the key shareholder/directors in alternative businesses that have needed focus to keep profitable and afloat. Clarification of the second factor, assured that the shareholder/director is actively looking for a replacement asset and is well aware that the time is running out to acquire a replacement asset. The shareholder/director just has not found one that is suitable due to the economic climate. Even though the focus is on other business investments, the shareholder/director is actively looking for a viable investment as a replacement asset as the shareholder/director is keen to acquire another business. After considering the relevant factors against the circumstances, it is considered that the factors provided are an acceptable explanation for an extension of time. It would seem fair and equitable to provide an extension of time in these circumstances. The granting of an extension in the circumstances will not give rise to any prejudice towards the Commissioner. There will not be any unsettling of any persons other than the Commissioner, nor will it unsettle any established practices as the granting of an extension of time to a taxpayer, dependent upon the facts, is itself an established practice. The granting of an extension of time in the circumstances would not result in any unfairness to people in similar circumstances or like positions to the taxpayer. The ability to apply for an extension of time is available to the wider taxpaying public. There appears to be no mischief involved in the circumstances which have resulted in the request for an extension of time. The consequences of granting the extension of time are that the taxpayer will be eligible for the small business roll-over concession, and thus the capital gain that would have arisen will be disregarded to the extent set out in section 152-415 of the ITAA 1997. The purpose of Subdivision 152-E of the ITAA 1997 is to allow small business taxpayers to use the relevant portion of the capital gain to acquire new CGT assets. This will happen if an extension of time is allowed. | Detailed Reasoning - Conclusion: After considering the relevant factors provided against the taxpayer's circumstances, it is considered that the taxpayer has provided a reasonable and acceptable explanation for the delay in acquiring a replacement asset. Allowing an extension of time would not prejudice the Commissioner, nor is it unfair to other people in similar positions. As a result, the Commissioner will exercise his discretion under subsection 104-197(5) of the ITAA 1997 to extend the time period to acquire a replacement asset to the date requested.