If you choose the rollover, the capital gain will not be included in your assessable income.
Further CGT events happen if you previously chose the rollover and certain conditions are not met by the end of the replacement asset period. This period starts one year before and ends two years after the last CGT event that occurs in the income year for which you choose the rollover.
A capital gain will arise if:
- you do not acquire one or more CGT assets as replacement assets or make a capital improvement to one or more existing assets, or both, within the replacement asset period (CGT event J5)
- the replacement asset you acquired, or the asset to which you made the capital improvement is not an active asset at the end of the replacement asset period (a depreciating asset such as plant can be a replacement asset) (CGT event J5)
- if the replacement asset is a share in a company or an interest in a trust, at the end of the replacement asset period
- you, or an entity connected with you, are not a CGT concession stakeholder in the company or trust, or
- CGT concession stakeholders in the company or trust do not have a small business participation percentage in you of at least 90% (CGT event J5)
- the capital gain previously disregarded under the roll over is, at the end of the replacement asset period, more than the sum of the following
- the amount paid to acquire the replacement asset (that is, the first element of the cost base of the replacement asset)
- any incidental costs incurred in acquiring that asset, which can include giving property (that is, the second element of the cost base of the replacement asset), and
- the amount expended on capital improvements to one or more assets that were acquired or already owned (that is, fourth element expenditure) (CGT event J6).
For a share in a company or interest in a trust to be an active asset, the company or trust must satisfy the 80% test, that is, the market value of the active assets and certain financial instruments of the company or trust must be 80% or more of the total of the market value of all the assets of the company or trust.
The Commissioner has the discretion to allow a longer replacement asset period by granting you an extension of time.
Example
Jordan owns 50% of the shares in Company A and Company B. This makes him a CGT concession stakeholder in both companies. The companies are connected with Jordan because he controls both of them.
Company A owns land which it leases to Jordan for use in a business. It sells the land at a profit and buys shares in Company B as replacement assets. All of Company B's assets are active assets.
The replacement asset test is satisfied because the shares are active assets and Jordan is connected with Company A and is a CGT concession stakeholder in Company B.
End of example