ATO Interpretative Decision
ATO ID 2003/147 (Withdrawn)
Capital Gains Tax
Capital gains tax: small business roll-over - function of replacement assetFOI status: may be released
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This ATOID is withdrawn because it involves a straight forward application of the law as it applied in respect of CGT events that happened prior to the 2006-07 income year.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 11 December 2009
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does a replacement asset have to fulfil the same function as an original asset in order for the small business roll-over in Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997) to apply?
Decision
No. There is no requirement that a replacement asset fulfil the same function as an original asset for the purpose of obtaining the small business roll-over in Subdivision 152-E of the ITAA 1997.
Facts
The taxpayer acquired land after 19 September 1985 which the taxpayer has used for the purpose of growing crops throughout the period that it has been owned.
The taxpayer decided to cease their agricultural business and commence a hotel business.
The taxpayer disposed of the land after 21 September 1999. A capital gain arose under subsection 104-10(4) of the ITAA 1997 on the disposal of the land.
Within two years after the disposal of the land, the taxpayer acquired a hotel from which to conduct their new business. The taxpayer began carrying on the business immediately after acquiring the hotel.
Reasons for Decision
If a taxpayer makes a capital gain from a CGT asset and satisfies all of the basic conditions in Subdivision 152-A of the ITAA 1997, the taxpayer may choose small business roll-over in Subdivision 152-E of the ITAA 1997.
To qualify for the roll-over, the taxpayer must satisfy the conditions in section 152-410 of the ITAA 1997. Paragraph 152-410(b) of the ITAA 1997 requires that the taxpayer must choose one or more CGT assets as replacement assets within the period starting one year before and ending two years after the CGT event for which it is choosing the roll-over.
The word 'replacement' in paragraph 152-410(b) of the ITAA 1997 extends to something that takes the place of, or substitutes for, the original asset. The CGT asset chosen does not have to be used for the same or a similar purpose to the purpose for which the original asset was used. Nor does the CGT asset necessarily have to be used in the same business as the original asset was used. If one or more active assets are chosen to replace the original asset, then this is sufficient for those assets to be a 'replacement asset' for the purposes of paragraph 152-410(b) of the ITAA 1997.
Therefore, the hotel acquired by the taxpayer within two years after the disposal of the land is a replacement asset for the purposes of paragraph 152-410(b) of the ITAA 1997.
Date of decision: 21 October 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1997
subsection 104-10(4)
section 152-410
paragraph 152-410(b)
Keywords
Capital gains tax
Small business roll-over
ISSN: 1445-2782
| Date: | Version: | |
| 21 October 2002 | Original statement | |
| You are here → | 11 December 2009 | Archived |