Edited version of private advice

Authorisation number: 1052488192041

Date of advice: 16 December 2025

Ruling

Subject: Capital gains tax small business concessions

Question 1

Are you eligible for the small business capital gains tax (CGT) roll-over concession for the sale of the farm?

Answer 1

Yes.

Question 2

Did CGT event J2 also occur on the sale of the property?

Answer 2

Yes.

This private ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your spouse purchased a property in 20XX.

The partnership, in which you and your spouse are the partners, runs a farming business.

The partnership operates a primary production business from the property.

The partnership made income of approximately $XX,XXX.XX for the year ended 30 June 2026.

You and your spouse sold a previous farming property in 20XX and disregarded the capital gain under the roll-over concession.

The property was purchased as the replacement asset in 20XX.

Since purchase, the property has been used to operate the primary production business.

The property was listed for sale, and a contract was signed MM 20XX. You and your spouse made a capital gain.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 104-185

Income Tax Assessment Act 1997 subsection 104-185(5)

Income Tax Assessment Act 1997 subsection 152-10 (1AA)

Further Issues for you to consider

When CGT event J2 happens to your replacement or capital improved asset, you make a capital gain equal to the gain previously disregarded under the small business roll-over.

If there was more than one replacement or capital improved asset and a change happens to only some of the assets, the capital gain is the difference between the:

•          amount that was originally rolled over, and

•          relevant costs on the remaining replacement or improved assets that met the relevant conditions.

The time of the event is when the change happens.

A capital gain from CGT event J2 may qualify for either:

•          further roll-over, if you acquire another replacement asset

•          the small business retirement exemption.

Reasons for decision

Summary

Yes, you and your spouse are eligible under section 152-10 of the Income Tax Assessment Act 1997 (ITAA 1997) for basic conditions for relief for a CGT roll-over small business concession for the sale of the replacement asset.

Detailed reasoning

Basic conditions

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 if the basic conditions are satisfied.

The basic conditions relevant in this case include:

•    a CGT event happens in relation to a CGT asset

•    the event results in a gain

•    you are a partner in a partnership that is a small business entity with an aggregated turnover of less than $2million, and the CGT asset is an asset of the partnership.

•    The asset satisfies the active asset test

Active asset test

This test requires the CGT asset to be an active asset for:

•    7 and half years if owned for more than 15 years, or

•    half of the test period if owned for 15 years or less.

A CGT asset is an active asset if it is owned by you and is used or held ready for use in the course of carrying on a business by you, your affiliate, your spouse or child under 18 years, or an entity connected with you.

CGT event J2

If an entity chooses the rollover concession, all or part of the capital gain will not be included in their assessable income until a change in circumstances happens, for example the replacement asset is sold. Under subsection 104-185(1) of the ITAA 1997 CGT event J2 happens if an entity chooses the rollover concession and a change in circumstances happens. When the change occurs, the deferred capital gain will crystallise.

When an entity disposes of a replacement asset, CGT event A1 happens in addition to CGT event J2. Any capital gain made from the A1 event on the disposal of the replacement asset may qualify for any of the small business CGT concessions if the relevant conditions are satisfied.

Application to your circumstances

Question 1

In this case, you and your spouse sold a property in the 20XX-XX financial year. CGT event A1 occurred on entering into the contract for sale and you and your spouse made a capital gain.

You and your spouse are partners in a partnership that operates a farming business. The turnover of the partnership is less than $2 million. In the case, the property has been used in the course of carrying on a business by the partnership for the entire ownership period, and the property satisfies the active asset test. Therefore, you and your spouse satisfy the basic conditions in relation to the disposal of the property and can disregard the capital gain under the small business roll-over concession.

Question 2

The property sold in the 20XX-XX financial year was the 'replacement asset' for a gain made and subsequently disregarded under the roll-over concession in the 2011 financial year. CGT event J2 occurred when this replacement asset was sold (in addition to the A1 event discussed at question 1).