Private ruling: Capital gains tax - replacement asset rollover
Date of advice: 1 September 2016
Published: October 2016
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner grant you an extension of time to incur some of the capital expenditure for the purposes of the replacement-asset roll-over conditions contained in subdivision 124-B of the ITAA 1997? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 124-B | Income Tax Assessment Act 1997 subsection 124-75(3)

Reasons for decision: Summary: Capital Gains tax (CGT) event C1 occurs if a CGT asset owned by you is lost or destroyed. The time of the event is when compensation for the loss or destruction is first received. A capital gain is made if the compensation amount is more than the asset’s cost base or a capital loss is made if the compensation amount is less than the asset’s reduced cost base. You may be able to obtain a roll-over after an asset is lost or destroyed. You must receive money or another CGT asset or both as compensation for the event or under an insurance policy against the risk of loss or destruction of the asset. As your original property was destroyed and you received money for the event happening from an insurance policy, you may have the option of choosing roll-over. You may choose roll-over only if you incur expenditure in acquiring another CGT asset. Subsection 124-75(3) of the Income Tax Assessment Act 1997 (ITAA 1997) states that you must incur at least some of the expenditure: ● no earlier than one year before the event happens ● within one year after the end of the income year in which the event happens, or ● within such further time as the Commissioner allows with special circumstances. | Detailed Reasoning - Special circumstances for further time:: Taxation Determination TD 2000/40 provides guidance on what are special circumstances for the purpose of subsection 124-75(3) of the ITAA 1997. The special circumstances are to be examined based upon the facts of the specific case. In determining if the discretion would be exercised the Commissioner has considered the following factors: ● 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 ● 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 ● Any unsettling of people, other than the Commissioner, or of established practices ● 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 - Conclusion: On the basis of the relevant factors above and the guidelines in TD 2000/40 your situation is considered to be special circumstances under which the Commissioner will grant an extension to acquire a replacement asset.

Relevant facts: You purchased a rental property after 20 September 1985. | The property was subject to an existing lease. | The property was purchased as a retirement property. | The property was destroyed in 2014. | You received an insurance settlement in 2014. | The insurance payment allowed amounts for demolition and reconstruction. | The costs of demolition and rebuilding the dwelling are significantly more than the insurance settlement. | The demolition of the property was delayed due to the presence of friable asbestos on the site and the need to engage specialist contractors to remediate the site. | The property was located on a difficult site to rebuild as significant earthworks are required to rebuild to current building regulations. | The site is also restricted by local bushfire regulations. | You have recently been made redundant which has made obtaining the necessary finance to meet the extra costs associated with rebuilding difficult. | You have engaged the services of architects and builders to resolve the costing in relation to reconstructing the property. | You will incur some capital expenditure in relation to rebuilding the property.