ATO Interpretative Decision
ATO ID 2002/786 (Withdrawn)
Capital Gains Tax
Capital gains tax: Small business relief - replacement asset acquired by different entityFOI status: may be released
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This ATO ID is withdrawn. The current ATO position on this issue is contained in ATO ID 2003/175.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the freehold of a hotel an eligible replacement asset in terms of subsection 152-420(1) of the Income Tax Assessment Act 1997 (ITAA 1997) if it is acquired by the shareholders of the company operating the hotel rather than the company itself?
Decision
No. The freehold of the hotel would not be an eligible replacement asset in terms of subsection 152-420(1) of the ITAA 1997 if it is acquired by the shareholders of the company rather than the company itself.
Facts
On 2 April 2002 the Gaming Machines Act 2001 commenced in New South Wales. Under that Act, poker machine entitlements were allocated by the NSW Liquor Administration Board to the company operating the hotel. The company is considering selling its poker machine entitlements.
The company owns the leasehold of the hotel but not the freehold. The shareholders of the company are considering purchasing the freehold in partnership using the proceeds of the sale of poker machine entitlements by the company.
Reasons for Decision
Under Subdivision 152-E of the ITAA 1997 a taxpayer can defer the making of a capital gain from a Capital Gains Tax (CGT) event happening if it acquires a replacement asset.
Section 152-420 of the ITAA 1997 sets out the conditions that a replacement asset must satisfy before a taxpayer is entitled to claim the small business roll-over. For an asset to be eligible as a replacement asset, the taxpayer must acquire it during the period starting one year before and ending two years after the occurrence of the last CGT event in the income year for which the taxpayer obtains the roll-over.
If the company were to acquire the freehold of the hotel as a replacement asset for the poker machine entitlements, it would qualify for the small business roll-over available under Subdivision 152-E of the ITAA 1997. However, it is the shareholders of the company not the company itself that intends to acquire the freehold. As the company would not own the freehold of the hotel, it cannot not be an eligible replacement asset in terms of subsection 152-420(1) of the ITAA 1997.
Date of decision: 7 June 2002Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
section 152-420
subsection 152-420(1)
ATO ID 2002/785
ATO ID 2002/787
Keywords
Capital gains tax
CGT replacement assets
CGT small business relief
Freehold
ISSN: 1445-2782
| Date: | Version: | |
| 7 June 2002 | Original statement | |
| You are here | 25 June 2004 | Archived |