Private ruling: Compulsory acquisition
Published: November 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you choose to apply the small business rollover contained in subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997) to a capital gain arising from the compulsory acquisition of part of your land? | A1: Yes | Q2: Where you meet the requirements contained in section 124-75 of the ITAA, can you choose to apply the rollover contained in subdivision 124-B of the ITAA 1997 to a capital gain arising from the compulsory acquisition of part of your land? | A2: Yes

Relevant facts and circumstances: You disposed of a CGT asset and made a capital gain in the 2010-11 financial year (the original capital gain). You elected to choose the small business rollover to defer all of the original capital gain. No other CGT event occurred in the 2010-11 financial year. You acquired an interest in land and this land was your replacement asset (replacement asset land). Since acquiring the replacement asset land, you have used it in a business you carry on as a sole trader. You are a small business entity. During the 2012-13 financial year, a government authority compulsorily acquired a portion of your land. A portion of the land acquired represented a portion the replacement asset land. You received monetary compensation from the government authority as a result of the compulsory acquisition and will make a capital gain. The first element of the cost base of the remaining replacement asset land is more than the original capital gain that was rolled over. You intend to acquire a further replacement asset.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 124-B | Income Tax Assessment Act 1997 Section 124-75 | Income Tax Assessment Act 1997 Subdivision 152-E | Income Tax Assessment Act 1997 Section 152-10

Reasons for decision: Detailed Reasoning - Small business rollover - subdivision 152-E of the ITAA 1997: The conditions surrounding the small business rollover are contained in subdivision 152-E of the ITAA 1997. The small business rollover allows an entity to defer all or part of a capital gain made from a CGT event happening to an active asset. To be eligible for the small business rollover, the basic conditions contained in section 152-10 of the ITAA 1997 must be met. In your case, it is accepted that you meet the basic conditions due to the following: · a CGT event occurred when a portion of your property was compulsorily acquired · the event will result in a gain · you are a small business entity; and · we consider that the asset meets the active asset test as it has been used in your business since it's acquisition. CGT event A1 occurred as a result of a government authority acquiring a portion of your land. As you have met the basic conditions, you may choose to defer all or part of the capital gain from the A1 event under the small business rollover. | Detailed Reasoning - Compulsory acquisition rollover - subdivision 124-B of the ITAA 1997: Under the provisions of subdivision 124-B of the ITAA 1997, an entity may be able to choose to roll-over a capital gain that results from a compulsory acquisition of a CGT asset they own. One of the circumstances in which a taxpayer can make this choice is if the asset is compulsorily acquired by an Australian government agency (paragraph 124-70(1)(a) of the ITAA 1997). 'Australian government agency' is defined in subsection 995-1(1) of the ITAA 1997 as the Commonwealth, a State or Territory, or an authority of one of them. In this case, a portion of your land has been compulsorily acquired by a government authority. Accordingly, subject to meeting the requirements of section 124-75 of the ITAA 1997, you will be entitled to apply the rollover contained in subdivision 124-B of the ITAA 1997 to any capital gain made from the A1 event.