ATO ID 2009/147: Capital gains tax: CGT discount - application of Subdivision 152-E and Subdivision 124-B roll-over
Date of decision: 3 December 2009
Year of income: Year ended 30 June 2007
Business line: Private Groups and High Wealth Individuals

Issue
If a taxpayer qualifies for both the small business roll-over in Subdivision 152-E the Income Tax Assessment Act 1997 (ITAA 1997) and the replacement asset roll-over in Subdivision 124-B of the ITAA 1997 in relation to a capital gain, can the taxpayer choose which to apply?

Decision
Yes. If a taxpayer qualifies for both the small business roll-over in Subdivision 152-E of the ITAA 1997 and the replacement asset roll-over in Subdivision 124-B of the ITAA 1997 in relation to a capital gain, the taxpayer can choose to apply either roll-over.

Facts
The taxpayer, an Australian resident, satisfies the maximum net asset value test in section 152-15 of the ITAA 1997. The taxpayer acquired land after 19 September 1985 which satisfies the active asset test in section 152-35 of the ITAA 1997. The land was compulsorily acquired during the 2006-07 income year and the taxpayer received money as compensation. A capital gain arose from the compulsory acquisition of the asset. The taxpayer used the compensation to acquire replacement land which was immediately used by the taxpayer in carrying on their business. The replacement land was acquired within one year of the land being compulsorily acquired.

Reasons for decision
Summary: CGT event A1 (in section 104-10 of the ITAA 1997) happens if a CGT asset you own is compulsorily acquired. A capital gain from a CGT event may be disregarded if a roll-over applies. There are two roll-overs that are potentially available to the taxpayer: the small business roll-over in Subdivision 152-E of the ITAA 1997, and the replacement asset roll-over in Subdivision 124-B of the ITAA 1997 for assets that are compulsorily acquired, lost or destroyed. If the taxpayer satisfies the conditions for both of the roll-overs, the taxpayer can choose which of the roll-overs to apply. In making the choice, the taxpayer might consider the different ways in which the roll-overs operate. For example, if the taxpayer chooses roll-over under Subdivision 152-E of the ITAA 1997, a capital gain from CGT event J2 in section 104-185 of the ITAA 1997 may arise if there is a change in the status of the replacement asset. A change of status might happen if, for example, the replacement asset is disposed of, or if it otherwise stops being an active asset of the taxpayer. This capital gain would be in addition to any capital gain or capital loss that is actually made from the replacement asset.

Legislative references: Income Tax Assessment Act 1997 section 104-10 section 104-185 Subdivision 124-B Subdivision 152-E section 152-15 section 152-35
Subject references: Capital gains tax CGT compulsory acquisitions CGT choice CGT events CGT replacement assets CGT replacement asset roll-over CGT small business relief CGT same asset roll-over