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Edited version of private advice
Authorisation Number: 1052156156208
Date of advice: 15 August 2023
Ruling
Subject: CGT - replacement asset
Question
Will the acquisition of the shares in the company be treated as the acquisition of a replacement asset?
Answer
Yes. The small business rollover allows you to defer the capital gain made from a capital gains tax (CGT) event if you acquire one or more replacement assets and satisfy certain conditions.
For you to obtain a rollover, you are required to acquire a replacement asset within a period starting one year before and ending two years after the date of disposal of the asset for which you are claiming the rollover. The Commissioner may extend those time periods.
The shares acquired in a newly established company are an eligible replacement asset for the purposes of the small business rollover.
This ruling applies for the following period:
Year ending 30 June 2024
The scheme commenced on:
1 July 2023
Relevant facts and circumstances
You own a substantial primary production property.
The property has been in your family for many years but was acquired by you less than 15 years ago. It has always been used in the family for carrying on a primary production enterprise.
You are over 55 years old and you have two children.
The property has been used continuously in the family farming business operated by trust.
You satisfy the small business CGT concessions in respect of the property as the land is an active asset used in a closely connected small business and the $2m aggregate turnover test is passed.
As part of family succession planning, you propose to transfer your land to a newly formed unit trust (with a corporate trustee).
You propose to retain an ownership interest in the new entity.
The units in the newly formed unit trust will be purchased by the following entities at market value:
- a newly formed Pty Ltd company to be controlled by your children will acquire a majority of the units. 100% of the shares in that company with be held by a family discretionary trust for the benefit of your family
- a newly formed Pty Ltd company controlled by you (who will be sole director and shareholder) will acquire the remaining units. The shares in that company will be issued to you.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 104-185(1)
Income Tax Assessment Act 1997 section 104-197
Income Tax Assessment Act 1997 Subdivision 152-E