Private ruling: small business roll over
Published: June 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you eligible to choose the small business rollover in relation to the disposal of the business? | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are a small business entity. You sold a business in the 2012-13 financial year which you had owned for four years. The business resulted in a trading loss for the 2012-13 financial year. You made a capital gain on the sale of the business. You purchased a franchise in the 2012-13 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-198. | Income Tax Assessment Act 1997 Section 152-40. | Income Tax Assessment Act 1997 Subdivision 152-E.

Reasons for decision: Summary: Where you choose 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 two years after the last CGT event that occurs in the income year for which you choose the roll over, or a longer period that the Commissioner allows. If the rollover conditions are not met within the replacement asset period the gain will become assessable. You satisfy the rollover conditions where you meet all the following conditions: • you acquire one or more CGT assets as replacement assets or make a capital improvement to one or more existing assets, or both, within the replacement asset period • the replacement asset, or the asset to which the capital improvement was made is an active asset at the end of the replacement asset period (a depreciating asset such as plant can be a replacement asset) • if the replacement asset is a share in a company or an interest in a trust, at the end of the replacement asset period: • you, or an entity connected with you, are a CGT concession stakeholder in the company or trust, or • CGT concession stakeholders in the company or trust have a small business participation percentage in the interposed entity of at least 90% • the capital gain that is being rolled over is not more than the sum of the following • the amount paid to acquire the replacement asset (that is, the first element of the cost base of the replacement asset) • any incidental costs incurred in acquiring that asset, which can include giving property (that is, the second element of the cost base of the replacement asset), and • the amount expended on capital improvements to one or more assets that were acquired or already owned (that is, fourth element expenditure). Following the sale of your business in the 2012-13 financial year, you made a capital gain. During the same period, you incurred a trading loss. You purchased a franchise. Your choice is to roll over a portion of the capital gain to the purchase of the franchise. The remainder amount will be declared as your capital gain to offset against the trading loss. Therefore, the roll over amount of the difference will crystallise. The final rollover condition you must meet is that the replacement asset must be an active asset of yours at the end of the replacement period. A CGT asset is an active asset if it is owned by you and is used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or an entity connected with you. In your case, you have purchased a franchise to be carried on. Accordingly, as long as the franchise is an active asset at the end of the replacement period, the franchise will satisfy the conditions for the small business rollover.