Private ruling: Small business rollover
Published: September 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Where you have chosen to defer a capital gain under the small business rollover, will the rollover conditions be satisfied if a company or trust that you are a capital gains tax (CGT) concession stakeholder in acquires the replacement asset? | A1: No

Relevant facts and circumstances: You made a capital gain from the sale of a property that you owned in your own name. You elected to defer the capital gain under the small business rollover. You intend to acquire another property as a replacement asset. You are unsure if the new property must be acquired in your own name, or if an entity of which you are a CGT concessions stakeholder can acquire the land.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-197 | 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 rollover, 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: o you, or an entity connected with you, are a CGT concession stakeholder in the company or trust, or o 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 o the amount paid to acquire the replacement asset (that is, the first element of the cost base of the replacement asset) o 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 o the amount expended on capital improvements to one or more assets that were acquired or already owned (that is, fourth element expenditure). Section 104-197 of the ITAA 1997 deals with the consequences that arise if a replacement asset is not acquired within the replacement asset period. Subsection 104-197(1) of the ITAA 1997 states that CGT event J5 will occur if 'you' have not acquired a replacement asset within the replacement asset period. In this instance, 'you' refers to the entity that chose the small business rollover. There are no provisions that allow the replacement asset to be acquired by any other entity. Accordingly, if the replacement property is acquired by a company or a trust that you are a CGT concession stakeholder in, the rollover conditions will not be satisfied.