What is substantially similar activity?
To work out whether the activities authorised in the new licence are substantially similar to those authorised by the original licence, you must consider:
- why your licence ended
- any changes to your skills used to operate your licence
- the way your business operates.
To decide if a new licence authorises similar activities consider:
- whether the equipment you used to operate under the original licence is similar to that required to operate under the new licence
- whether the duration of the authorised licence period changed
- the authorised quantity, type or volume of a resource you will access
- the authorised quantity, type or volume of a product you will supply
- changes to your physical operation.
Caughtya Pty Ltd held a licence (the original licence) to catch a species of fish in the protected waters of Banana Bay in southeast Queensland.
The issuing authority worked out that continued fishing of this species was not sustainable and cancelled the licences.
Caughtya Pty Ltd was issued with a new licence to catch a different species of fish in the open waters off central Queensland. The new but more valuable licence was issued to replace the original licence:
- authorised a different species
- re-zoned the authorised fishing area.
As a result, Caughtya Pty Ltd modified and replaced equipment including the purchase of a bigger ocean going vessel, to fish in the new waters.
Caughtya Pty Ltd continues to operate in the fishing industry and to use the same commercial fishing skills as authorised under their original licence.
As the activities are substantially similar a capital gains tax (CGT) rollover applies.
End of example
Maggie’s aquaculture licence allowed her to farm Murray cod, barramundi and trout. The issuing authority told Maggie she could no longer farm fish due to water sustainability concerns in the region.
When they cancelled her licence, the state government gave Maggie a cash payment to help her move into new business activities.
Maggie chose to accept the state government’s offer of a licence to manufacture eucalyptus oil, using the cash she received to pay for the new licence.
Even though the aquaculture licence was cancelled and Maggie used the proceeds from the cancelled licence to acquire the oil manufacturing licence, the oil manufacturing licence was not issued as a result of the cancellation of the original licence. Further, the activities authorised by the two licences are not substantially similar. The CGT rollover does not apply to Maggie.
End of example