Defer all or part of a capital gain made from selling an active asset.
The small business roll-over allows eligible small businesses to defer all or part of a capital gain made from selling an active asset.
If you acquire a replacement asset or incur costs on making capital improvements to an existing asset, these gains will be deferred until you dispose of the asset.
To qualify for the small business roll-over, you:
If you choose the roll-over, the capital gain will not be included in your assessable income.
You can choose the roll-over before you acquire a replacement asset or incur costs on capital improvements to an existing asset. Further CGT events occur if you have not acquired a replacement asset or incurred costs on capital improvements of an existing asset at the end of the replacement asset period (2 years from the CGT event). Consequences of choosing the roll-over explains this in further detail.
For a share in a company or interest in a trust to be an active asset, the company or trust must meet the 80% test. This means the market value of the active assets and certain financial instruments of the company or trust must be 80% or more of the total market value of all the assets of the company or trust.
If a company or trust chooses the roll-over for a capital gain and then distributes an amount out of the gain to a shareholder or beneficiary, the distribution is not exempt. This means the concession does not flow through to the individuals. Such distributions by a company are likely to be assessable to the shareholder as an unfranked dividend.
You can apply the small business roll-over to as much of the capital gain as you decide.
If you choose to apply the roll-over to only some of the capital gain, you will make a capital gain equal to the remaining amount that you are not rolling over.
There is a specific order to apply the small business CGT concessions.
Further CGT events happen if:
The replacement asset period starts one year before the last CGT event in the income year for which you obtained the roll-over; it ends at the later of:
The following CGT events will happen, and a capital gain will arise, if:
The ATO can extend the replacement asset period.
Lana disposes of an active asset (a parcel of land) and decides to search for a suitable replacement asset to use in her business. As she meets all basic eligibility conditions, she qualifies for the small business roll-over.
After applying other small business CGT concessions, Lana defers the remaining capital gain of $3,500 for the disposal of this asset.
After 6 months, Lana acquires another small parcel of land directly adjoining the main business premises to use in her business. The replacement land costs $10,000, and it is her active asset before the end of the replacement asset period.
This deferred capital gain of $3,500 may later become assessable if Lana:
However, she could then choose a further small business roll-over if she acquires another replacement active asset. Or if Lana is eligible, she could choose the retirement exemption instead.
CGT event J5 happens if you choose to obtain a roll-over, and by the end of the replacement asset period:
When CGT event J5 happens, you make a capital gain equal to the amount of the capital gain previously disregarded under the small business roll-over.
The time of the event is at the end of the replacement asset period.
A capital gain from CGT event J5 may be eligible for the small business retirement exemption if you meet the relevant conditions. You don’t need to meet the basic eligibility conditions again, but you must meet the small business retirement exemption conditions.
However, you can't apply the CGT discount, small business 50% active asset reduction, or the small business 15-year exemption to reduce this gain.
In September 2020, Luke made a capital gain of $80,000 on an active asset. He met the maximum net asset value test.
Luke disregarded the whole capital gain under the small business roll-over.
In September 2022 (the end of the 2-year period), Luke did not have any replacement or capital improved assets. CGT event J5 happens and Luke makes a capital gain of $80,000 in September 2022.
CGT event J6 happens if:
When CGT event J6 happens, you make a capital gain equal to the difference between the amount:
The time of the event is at the end of the replacement asset period.
When CGT event J6 occurs, you may be eligible for the small business retirement exemption, if you meet the relevant conditions for that exemption. You don’t need to meet the basic eligibility conditions again.
However, you can't apply the 50% discount, small business 50% active asset reduction, or the small business 15-year exemption to reduce this gain.
In October 2020, Nicky:
In November 2021, Nicky purchased new business premises for $300,000 and spent $150,000 on improving some other assets. The replacement and capital improved assets met all relevant conditions.
The capital gain that was rolled over was $700,000. However, the costs of the replacement and capital improved assets were only $450,000.
In October 2022, 2 years after the original CGT event, CGT event J6 happens because there has been insufficient costs incurred and Nicky makes a capital gain of $250,000. The roll-over of $450,000 of the original capital gain continues.
CGT event J2 happens if, after the end of the replacement asset period, there is a change in the status of a replacement or capital improved asset you chose for the small business roll-over.
Examples of CGT event J2 include:
When CGT event J2 happens to your replacement or capital improved asset, you make a capital gain equal to the gain previously disregarded under the small business roll-over.
If there was more than one replacement or capital improved asset and a change happens to only some of the assets, the capital gain is the difference between the:
The time of the event is when the change happens.
A capital gain from CGT event J2 may qualify for either:
This is if you meet the relevant conditions for the small business roll-over or small business retirement exemption.
If you dispose of a replacement or capital improved asset, another CGT event (CGT event A1) happens in addition to CGT event J2. Any capital gain you make from CGT event A1 on the disposal of the replacement or capital improved asset may qualify for any of the small business CGT concessions. This is if the relevant conditions are met.
If CGT event J2 or J6 have previously happened in relation to the roll-over, the capital gain is calculated as in the example below, less the capital gain previously made under the respective CGT events.
Pan disposes of an active asset for $10,000, making a capital gain of $2,000.
He buys 2 replacement assets for $5,000 each. The assets are not depreciating assets.
Pan chooses the small business roll-over. $1,000 of the capital gain is disregarded for each replacement asset.
Pan later sells one of the replacement assets for $7,500 – so he makes a capital gain of $2,500.
He also makes a capital gain of $1,000 because the sale of the replacement asset results in that asset no longer being an active asset (CGT event J2). The $1,000 capital gain is the capital gain made on the disposal of the active asset that was rolled over in respect of this replacement asset.
Pan’s capital gain of $1,000 (from CGT event J2 happening) may be eligible for either:
The capital gain of $2,500 made from the disposal of the replacement asset (CGT event A1) may be eligible for any of the concessions. This is if the relevant conditions are met.
If, just before dying, a person still owned a replacement or capital improved asset from an earlier small business roll-over, both CGT events J2 and A1 will happen upon the person's death.
CGT event J2 happens because the replacement asset or capital improved asset will stop being the deceased's active asset.
CGT event A1 will happen when the asset is transferred to their legal personal representative (LPR) or beneficiary upon the deceased's death.
The capital gain from CGT event A1 and CGT event J2 are disregarded under the general rules concerning death. The capital gain on the replacement asset from CGT event A1 is effectively deferred until a later sale of the asset by the LPR or beneficiary. However, the capital gain from CGT event J2 is not transferred to the LPR or beneficiary and, as a result, remains permanently disregarded.
