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Ruling

Subject: CGT - Small business rollover replacement asset

Question

For the purposes of the capital gains tax (CGT) small business rollover provisions, can a car which has 30% business usage and 70% private usage, be considered a replacement asset with the full cost offset against the original capital gain?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You run a business together as a partnership.

You sold one block of your land and made a capital gain.

You qualified for the small business concessions in relation to this gain.

After applying the general CGT discount and the 50% active asset reduction you are still left with a capital gain.

Within the replacement asset period of one year before and two years after the CGT event, you purchased a vehicle as a replacement asset.

The vehicle is used for business purposes. The business use percentage is 30% with the remaining use being for private purposes.

You still hold a substantial amount of land and the business is continuing.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 152-10

Income Tax Assessment Act 1997 Section 152-40

Income Tax Assessment Act 1997 Subdivision 152-E

Reasons for decision

The rules covering the small business rollover are contained in Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997). The small business rollover allows you to defer all or part of a capital gain made from a CGT event happening to an active asset.

In addition to the basic conditions for the small business concessions, there are rollover conditions that must be satisfied by the end of the replacement asset period. The Advanced guide to capital gains tax concessions for small business 2010-11 (NAT 3359), which is available on our website, www.ato.gov.au, discusses these conditions.

One of the requirements for an asset to be eligible to be a replacement asset is that it must be an active asset. Under section 152-40 of the ITAA 1997, a CGT asset is an active asset (subject to some exclusions) if it is owned by you and used or held ready for use by you in the course of carrying on a business. The definition of an active asset does not require exclusive use of the asset for business purposes.

In your case, you disposed of a block of your land and satisfied the basic conditions for the small business concessions. You purchased a vehicle within the required replacement asset period and you use that vehicle in your business. Since the vehicle is used by you in the course of your business and does not fall within one of the exclusions under subsection 152-40(4) of the ITAA 1997, the vehicle is an active asset. The private usage of the vehicle does not prevent it from being considered an active asset.

Accordingly, the vehicle you have purchased is eligible to be considered a replacement asset and the full cost of the vehicle can be used to offset the capital gain realised from the sale of the land under the small business rollover.