Private ruling: CGT - use of replacement asset
Date of advice: 22 April 2026
Published: 6 July 2026
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: 1 December 20YY

Ruling: Q1: Will the same or similar purpose test contained in subsection 124-75(4) of the Income Tax Assessment Act 1997 be satisfied if you purchase a residential investment property? | A1: Yes.

Relevant facts and circumstances: You owned a commercial property (the "Property"), which you leased to unrelated third parties. You sold the Property to a government department (the "Department") in the following circumstances: • The disposal took place after you were served a notice by the Department. • The notice invited you to negotiate with the Department with a view to it acquiring the Property by agreement. • The notice informed you that if the negotiations were unsuccessful, the Property would be compulsorily acquired by the Department. • The compulsory acquisition would have been under a power of compulsory acquisition conferred by an Australian law. You received money for the sale of the Property and intend to purchase a residential property (the "Replacement Property") with the sale proceeds. The Replacement Property will be leased to unrelated third parties. You will hold the Replacement Property as a long-term investment with the intention of realising capital growth from increases in real property values.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision124-B | Income Tax Assessment Act 1997 subsection 124-75(4)

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated. The following Taxation Determinations are referred to in the reasoning below: • Taxation Determination TD 2000/41 Income tax: capital gains: are the two requirements in subsection 124-75(4) of the Income Tax Assessment Act 1997 for a CGT asset acquired to replace an original asset alternative and mutually exclusive requirements? (TD 2000/41) • Taxation Determination TD 2000/42 Income tax: capital gains: what is the scope of the words 'use the other asset... for the same purpose... or for a similar purpose' in subsection 124-75(4) of the Income Tax Assessment Act 1997 in relation to a replacement asset? (TD 2000/42) • Taxation Determination TD 2000/44 Income tax: capital gains: what constitutes 'a reasonable time' for the purposes of subsection 124-75(4) of the Income Tax Assessment Act 1997? (TD 2000/44) A CGT roll-over may be available under Subdivision 124-B where one of the events (the "event") listed in subsection 124-70(1) happens to a CGT asset you own. Where you receive money for the event happening, the additional requirements in section 124-75 must be satisfied to choose the roll-over. Subsection 124-75(4) sets out two alternative and mutually exclusive requirements, either of which may be satisfied (paragraph 1 of TD 2000/41). Firstly, if just before the event happened the original asset was used, or installed or being installed for use, in your business, then the replacement asset must be used, or be installed ready for use, in the business for a reasonable time after acquisition (TD 2000/41, paragraph 4). Alternatively, for a reasonable time after acquisition, the replacement asset must be used for the same or a similar purpose as the original asset was used just before the event. Whether this requirement is satisfied is a question of fact and degree, to be determined having regard to the particular circumstances (TD 2000/41, paragraphs 5-6; TD 2000/42, paragraph 2). What constitutes a 'reasonable time' for the purpose of subsection 124-75(4) is determined objectively, having regard to the particular facts and circumstances of each case (TD 2000/44, paragraph 1). The requirement may not be satisfied where the nature or use of the replacement asset changes, for example, where a rental property is subsequently used as a main residence. In such cases, the roll-over is only available if the replacement asset is used for the same or a similar purpose as the original asset for a period that is long enough to be regarded as reasonable, having regard to the total period of ownership (paragraph 3). | Detailed Reasoning - Your circumstances: You received money for the sale of your commercial property (the "Original Property"), which you leased to unrelated third parties to derive rental income. You intend to purchase a residential rental property (the "Replacement Property") with the sale proceeds that you will lease to unrelated third parties. It is considered that the 'same or similar purpose' test in subsection 124-75(4) will be satisfied as: • your use of the Replacement Property will be the same as, or a similar purpose to, your use of the Original Property; and • your intention to benefit from capital growth arising from increases in real property values demonstrates that the Replacement Property will be held for a reasonable time after the acquisition.