Private ruling: CGT - small business concessions
Published: August 2012
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the replacement property satisfy the replacement asset conditions for the purposes of the small business rollover conditions if you commence a business on the property prior to the extended asset replacement period? | A1: Yes.

Relevant facts and circumstances: You sold a property and elected to take advantage of the small business rollover. You were carrying on a business activity on this property. You were granted an extension to the asset replacement period. You purchased a replacement property as joint tenants with your spouse. You leased the replacement property to an unrelated party. After a period of time you placed the replacement property on the market; however you were unable to find a buyer. You decided not to sell the property. The lease for the replacement property is due to expire. Following the expiry of the lease you now intend to run a business on the property in partnership with your spouse. You will have a X% interest in the partnership. Your share of the acquisition cost and capital improvements made to the replacement property equate to more than the amount that was rolled over in your income tax return following the sale of the original property.

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). | Detailed Reasoning - Application to your circumstances: Following the sale of your property, you purchased a replacement property jointly with your spouse. Your share of the acquisition cost and capital improvements made to the replacement property equate to more than the amount that was rolled over in your income tax return following the sale of the original property. 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. The Commissioner has previously allowed you an extension to the asset 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. You intend to commence a business on the replacement property in partnership with your spouse following the expiry of the lease. An entity is connected with you where either entity controls the other entity, or both entities are controlled by the same third entity. You have a X% share in the partnership, therefore you control the partnership. If follows that the partnership that will run the business is an entity that is connected with you. Accordingly, as long as the replacement property is used by the partnership in a business at the end of the extended asset replacement period, the property will satisfy the rollover conditions for the small business rollover.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.