ATO Interpretative Decision
ATO ID 2009/147
Income Tax
Capital gains tax: CGT discount - application of Subdivision 152-E and Subdivision 124-B roll-overFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
If a taxpayer qualifies for both the small business roll-over in Subdivision 152-E the Income Tax Assessment Act 1997 (ITAA 1997) and the replacement asset roll-over in Subdivision 124-B of the ITAA 1997 in relation to a capital gain, can the taxpayer choose which to apply?
Decision
Yes. If a taxpayer qualifies for both the small business roll-over in Subdivision 152-E of the ITAA 1997 and the replacement asset roll-over in Subdivision 124-B of the ITAA 1997 in relation to a capital gain, the taxpayer can choose to apply either roll-over.
Facts
The taxpayer, an Australian resident, satisfies the maximum net asset value test in section 152-15 of the ITAA 1997.
The taxpayer acquired land after 19 September 1985 which satisfies the active asset test in section 152-35 of the ITAA 1997.
The land was compulsorily acquired during the 2006-07 income year and the taxpayer received money as compensation. A capital gain arose from the compulsory acquisition of the asset.
The taxpayer used the compensation to acquire replacement land which was immediately used by the taxpayer in carrying on their business. The replacement land was acquired within one year of the land being compulsorily acquired.
Reasons for Decision
CGT event A1 (in section 104-10 of the ITAA 1997) happens if a CGT asset you own is compulsorily acquired. A capital gain from a CGT event may be disregarded if a roll-over applies. There are two roll-overs that are potentially available to the taxpayer:
the small business roll-over in Subdivision 152-E of the ITAA 1997, and
the replacement asset roll-over in Subdivision 124-B of the ITAA 1997 for assets that are compulsorily acquired, lost or destroyed.
If the taxpayer satisfies the conditions for both of the roll-overs, the taxpayer can choose which of the roll-overs to apply. In making the choice, the taxpayer might consider the different ways in which the roll-overs operate.
For example, if the taxpayer chooses roll-over under Subdivision 152-E of the ITAA 1997, a capital gain from CGT event J2 in section 104-185 of the ITAA 1997 may arise if there is a change in the status of the replacement asset. A change of status might happen if, for example, the replacement asset is disposed of, or if it otherwise stops being an active asset of the taxpayer. This capital gain would be in addition to any capital gain or capital loss that is actually made from the replacement asset.
Date of decision: 3 December 2009Year of income: Year ended 30 June 2007
Legislative References:
Income Tax Assessment Act 1997
section 104-10
section 104-185
Subdivision 124-B
Subdivision 152-E
section 152-15
section 152-35
Keywords
Capital gains tax
CGT compulsory acquisitions
CGT choice
CGT events
CGT replacement assets
CGT replacement asset roll-over
CGT small business relief
CGT same asset roll-over
Date reviewed: 26 June 2017
ISSN: 1445-2782