Edited version of private advice

Authorisation Number: 1012653414474

Ruling

Subject: CGT small business concessions

Question 1

If a replacement capital gains tax (CGT) asset is not acquired by the end of the replacement asset period as extended by the Commissioner, will CGT event J5 occur?

Answer

Yes

Question 2

If so, and the retirement exemption contained in subdivision 152-D of the Income Tax Assessment Act 1997 (ITAA 1997) is chosen to disregard all or part of the capital gain resulting from the J5 event, will the requirement contained in subsection 152-325(4) of the ITAA 1997 be met if multiple payments totalling the relevant amount are made to a CGT concession stakeholder within the seven day period?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You made a capital gain and elected to apply the small business rollover concession.

You received a private ruling that provided you with an extension to the replacement asset period.

If a replacement asset is not obtained by the date extended by the Commissioner, you intend to apply the retirement exemption to any capital gain that may crystallise.

You understand that as a result of making this choice, a payment is required to be paid to a CGT concession stakeholder in line with that stakeholder's percentage of the exempt amount within seven days of making the choice.

Restrictions placed on you by your bank will prevent you from making the payment to a CGT concession stakeholder in one lump sum. Accordingly, you will make multiple payments within the allowed seven day period totalling the relevant amount.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 104-190(2)

Income Tax Assessment Act 1997 Section 104-197

Income Tax Assessment Act 1997 Subsection 104-197(1)

Income Tax Assessment Act 1997 Subsection 104-197(3)

Income Tax Assessment Act 1997 Subsection 104-197(4)

Income Tax Assessment Act 1997 Subdivision 152-D

Income Tax Assessment Act 1997 Section 152-325

Income Tax Assessment Act 1997 Subsection 152-325(4)

Income Tax Assessment Act 1997 Subsection 152-315(5)

Income Tax Assessment Act 1997 Subdivision 152-E

Reasons for decision

CGT event J5

Where an entity chooses the small business rollover contained in subdivision 152-E of the ITAA 1997, certain requirements must be met within the replacement asset period. This period starts one year before and ends two years after the last CGT event that occurs in the income year for which you choose the rollover (or further time allowed by the Commissioner).

In your case, you chose the small business rollover in relation to a CGT event. Pursuant to subsection 104-190(2) of the ITAA 1997, the Commissioner extended your replacement asset period.

Section 104-197 of the ITAA 1997 deals with the consequences that arise if a replacement asset is not acquired within the replacement asset period. Subsection 104-197(1) of the ITAA 1997 states that CGT event J5 will occur if you have not acquired a replacement asset by the end of the replacement asset period.

Accordingly, if you have not acquired a replacement asset by the relevant date, CGT event J5 will occur and you will make a capital gain equal to the amount you previously disregarded under the small business rollover (subsection 104-197(4) of the ITAA 1997).

Retirement exemption

Where a company chooses the retirement exemption contained in subdivision 152-D of the ITAA 1997, section 152-325 of the ITAA 1997 requires that the company makes a payment to at least one of its CGT concession stakeholders. The payment must be made within seven days of making the choice to apply the retirement exemption and the amount must be worked out with reference to the individual's percentage of the exempt amount (subsection 152-315(5) of the ITAA 1997 requires that when making the choice, a company must specify in writing the percentage of the exempt amount that will be attributable to each CGT concession stakeholder).

In your case, your banking restrictions will prevent the full amount being paid from your account in one lump sum. Accordingly, you will make a series of payments, all within the allowed seven day period, that will total the amount worked out with reference to the CGT concession stakeholder's exempt amount.

These series of payments will satisfy the requirement to make a 'payment' contained in subsection 152-325(4) of the ITAA 1997.

Note: Where the CGT concession stakeholder is under 55 years of age, the payment must be made to a complying superannuation fund or retirement savings account.