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Edited version of your written advice
Authorisation Number: 1013012943480
Date of advice: 11 May 2016
Ruling
Subject: Capital gains tax - small business concession - small business rollover - replacement asset
Question
Can a motor vehicle, used by you in the course of carrying on a business, be a replacement asset for the purposes of the small business roll-over concession contained in Subdivision 152-E of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 20YY
Year ending 30 June 20ZZ
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You made a capital gain from the sale of an active asset sold in the 20WW-XX financial year.
You applied the small business rollover to the capital gain made by the sale of the asset.
The two year replacement asset period ends in the 20YY-ZZ financial year.
You are a small business entity.
You are commencing a new business.
You intend to purchase a motor vehicle to use in the course of carrying on your business.
You want to nominate the car as a replacement asset under the small business roll-over.
Relevant legislative provisions
Income Tax Assessment Act 1997 subdivision 152-A,
Income Tax Assessment Act 1997 section 152-40 and
Income Tax Assessment Act 1997 subdivision 152-E.
Reasons for decision
The small business roll-over provisions set out in Subdivision 152-E of the ITAA 1997 allows a deferral of a capital gain if a replacement asset is acquired and other conditions are satisfied. The deferred capital gain may later crystallise (that is, you will make a capital gain equal to the capital gain previously deferred), if the replacement asset is disposed of or its use changes in particular ways. The crystallised capital gain is in addition to any gain made on the disposal of the replacement asset.
A basic requirement for an asset to be eligible to be a replacement asset is that it must be an active asset. The meaning of active asset is set out in section 152-40 of the ITAA 1997. To be an active asset, the asset must be owned by a small business entity and be used or held ready for use in the course of carrying on a business.
Under the advanced guide to capital gains tax concession for small business 2013-2014, depreciating assets are still CGT assets. Furthermore the guide explains that a depreciating asset may also be an active asset and may be chosen as a replacement asset under the small business rollover.
The motor vehicle would be a depreciating asset, but can still be considered an active asset and may be chosen as a replacement asset under the small business rollover. As the motor vehicle will be used in the course of carrying on a business, it can be considered an active asset.
Therefore as the motor vehicle is to be used in the course of carrying on a business, the motor vehicle is eligible to be a replacement asset.