Private ruling: CGT – small business concessions – replacement asset – extension of time
Date of advice: 14 December 2017
Published: April 2018
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period to XX August 20XX? | A1: Yes

Relevant facts and circumstances: You disposed of your shareholding in a private company under an agreement executed on XX July 20XX. The purchase price for the sale comprised cash and an earnout amount. Two earnout payments were due on the anniversary of the sale and were based on meeting agreed targets. Earnout payments were made on the following dates: ● XX September 20XX ● XX August 20XX You and business partner, G commenced a Partnership (the partnership) to run a business. You have invested in this new venture by contributing funds for the purchase of land and the design of buildings to be owned by yourself and G 50/50 as tenants in common, for use in the business. The development application is currently with council for approval and you plan to commence construction early 20XX.

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

Reasons for decision: Summary: Where a taxpayer elects to take advantage of the small business rollover, there are rollover conditions that must be satisfied by the end of the replacement asset period. This period starts one year before and ends at the later of 2 years after the last CGT event and 6 months after the last payment relating to an earnout right (section 104-190 of the Income Tax Assessment Act 199 7 (ITAA 1997)). However the Commissioner may extend the replacement asset period in certain circumstances (subsection 104-190(2) of the ITAA 1997). The relevant factors in determining whether to extend the replacement asset period are: ● 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 ● a consideration of the consequences. You rolled over a capital gain under the small business rollover for a CGT event that occurred on XX July 20XX. Due to the nature of the sale agreement, you received earnout payments until XX August 20XX and building work is still required to be completed before the business will be operational. Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner has applied his discretion and will extend the asset replacement period to XX August 20XX.