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If you choose the roll-over, all or part of the capital gain will not be included in your assessable income until a change in circumstances happens, for example you don't meet the rollover conditions within the specified time period. One of the roll-over conditions is that you must acquire a replacement asset or incur capital expenditure on improving an existing asset.
If your use of the replacement or improved asset changes (for example, you no longer use it in the business or you sell it) this is a change in circumstances.
When a change in circumstances happens the deferred capital gain will crystallise - that is, all or part of the capital gain previously deferred will become assessable.
You can choose to apply certain concessions to this gain. If there is any amount of the capital gain left after applying all the concessions you choose, this amount will be included in your assessable income.
Cost base of replacement asset
There is no reduction in the cost base of the replacement asset when the capital gain is rolled over.
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Karen had a capital gain of $100,000. It has been reduced to $25,000 under the CGT discount and 50% active asset reduction. She chose to rollover part of the remaining gain into an asset she has owned for 8 months. The total of the first and second elements of the cost base of the replacement asset is $20,000, $20,000 can be disregarded under the rollover leaving a final capital gain of $5,000.
Last modified: 30 Jun 2009QC 27964