Private ruling: CGT - replacement asset
Date of advice: 12 August 2022
Published: November 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under Subsection 104-190(2) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the replacement asset period to 30 June 20XX? | A1: No.

Relevant facts and circumstances: You sold your business on XX April 20XX. You applied the small business 50% active asset reduction and the small business rollover concessions to reduce the capital gain made from the disposal of the business. During the year after the sale of your business you were subject to various prosecutions and for many months were under severe mental stress. Your intention was to acquire a replacement asset within the two-year replacement asset period however you were only able to look at three potential business options within this time, none of which progressed. The replacement asset period ended in April 20XX. You were incarcerated approximately 6 months after the replacement asset period ceased, for two years. You were released from jail approximately X year after being incarcerated. Between your release and February 20XX you enquired about the acquisition of the following businesses: • approximately X bars, taverns and night clubs - none of which proceeded as you are unable to obtain a liquor licence due to your criminal conviction. • several childcare centres and an after-hours day care business - none of which proceeded as you are unable to obtain a 'working with children' licence due to your criminal conviction. • X other businesses which did not proceed due to various reasons including the businesses not viable, couldn't find a tradesperson to complete 'fit out' and too expensive. You lodged your income tax return for the year the replacement asset period ceased, approximately 4 years later, declaring CGT event J5 happening and choosing to apply the retirement exemption. You did not make the contribution into your superannuation fund within seven days of making your choice as required to apply the retirement exemption. You applied for an extension of time for the replacement asset period approximately 4 years after the replacement asset period ceased and approximately a week after lodging your income tax return for the year the replacement asset period ceased.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-190

Reasons for decision: Detailed Reasoning - Commissioner's Discretion: Subsection 104-190(2) of the ITAA 1997 grants the Commissioner the power to extend the replacement asset period. In determining if the discretion to extend the replacement asset period should be exercised, the Commissioner considers 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. In prior cases, the Commissioner has granted an extension of time where there have been special circumstances and an acceptable explanation for the period of extension requested. These can include, but are not limited to medical or financial issues, personal issues or natural disasters. It is accepted the court proceedings caused inconvenience in your attempt to acquire a replacement asset in the two-year replacement asset period which ceased prior to your incarceration. Once released from jail you did not request an extension of time to the replacement asset period for approximately 4 years. Although you continued to look at businesses to acquire, the Commissioner is not satisfied that this was a genuine attempt to acquire a replacement asset as you were not able to undertake the business activities of most of the businesses identified due to your inability to obtain the required licences due to your criminal conviction. You lodged your 20XX-XX income tax return on XX February 20XX declaring CGT event J5, which is triggered when a replacement asset is not acquired within the replacement asset period. In that income tax return you also made the choice to apply the CGT small business retirement exemption, however the conditions to apply this concession had not been satisfied as no contribution was made to your superannuation fund within the required timeframe, thus making this choice invalid. You lodged your request for an extension of time approximately one week after making the choice and after the conditions to apply the CGT small business concessions had not been met. Having considered the facts, the Commissioner will not exercise the discretion in under subsection 104-190(2) of the ITAA 1997 to extend the replacement asset period. As there has not been an extension to the replacement asset period, CGT event J5 will have triggered on cessation of the replacement asset period (as declared in your 20XX-XX income tax return) and as the conditions for the retirement exemption have not been met, the capital gain will be assessed without the small business retirement concession applying in the 20XX-XX income year.