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Capital gains tax concessions for small business

Small business rollover

Section: 12.7

12.7 Small business rollover

The small business rollover concession defers the capital gain on the sale of an asset where a replacement asset is acquired or capital is expended to improve an existing asset. The basic conditions and additional conditions must be met to apply the small business rollover concession.

The rollover concession is generally applied after the 50% CGT discount (if applicable) and 50% active asset reduction. It can be applied to the remaining capital gain instead of the retirement exemption or in conjunction with the retirement exemption but on different parts of the capital gain.

The deferred capital gain crystallises when the replacement asset or improved asset is no longer an active asset (ie no longer used in the business) or it is sold. When this happens, all or part of the capital gain which has been deferred becomes assessable. However, the entity may choose to apply the 50% active asset reduction (if not already claimed) and/or the retirement exemption to the capital gain at this later date.

This is example is extracted from the ATO website:

Instead of choosing the retirement exemption, Liz decides that she will search for a suitable replacement asset to use in her business. As she meets all basic conditions, she qualifies for the small business rollover.

This means she can defer her capital gain remaining after all other concessions have applied ($3,500).

After six months, Liz acquires another small parcel of land immediately adjoining the main business premises to use in her business. The replacement land costs of $10,000, and it is her active asset before the end of the replacement asset period, so she meets the further conditions.

This deferred capital gain of $3,500 may later become assessable if Liz:

  • sells the land
  • stops using it in her business.

However, she could then choose a further small business rollover if she acquires another replacement active asset. Alternatively, Liz could choose the retirement exemption.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Wednesday, June 28, 2023