The small business rollover allows you to defer all or part of a capital gain for two years or longer if you meet the following conditions:
- you acquire a replacement asset or
- you incur expenditure on making capital improvements to an existing asset.
If you apply the small business rollover after the small business 50% active asset reduction, you apply it to the remaining 50% of the gain. If you have also applied the CGT discount, you apply the rollover to the remaining 25% of the capital gain.
You can use this concession for any gain remaining before or after you have applied any other concessions.
Do you qualify?
Your business qualifies to roll over a capital gain if you meet the basic conditions (see step 1). To defer the gain for more than two years, you must also meet further conditions 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.
Further conditions
To defer the gain for more than two years, the following conditions must be met by the end of the replacement asset period:
- you must acquire a replacement asset or make a capital improvement to an existing asset, or do both, within the replacement asset period
- the replacement asset must be an active asset by the end of the replacement asset period
- if the replacement asset is a share in a company or an interest in a trust, by the end of the replacement asset period
- you or an entity connected with you must be a CGT concession stakeholder in that company or trust, or
- CGT concession stakeholders in the company or trust must have a small business participation percentage in you of at least 90%
- the cost of the replacement asset or capital improvement must be equal to or greater than the gain you deferred.
You can choose the rollover even if you have not yet acquired a replacement asset or made a capital improvement to an existing asset, but a new capital gain will arise if the any of the following happens:
- you do not acquire an active asset, or make a capital improvement to an existing active asset by the end of the replacement asset period
- by the end of the replacement asset period the cost of the replacement active asset or capital improvement (including incidental costs) is less than the amount of the capital gain that you disregarded
- a change happens to the replacement (or capital improved) asset after the replacement asset period (for example, you sell it or stop using it in your business).
If a new capital gain arises because you have not met the further conditions by the end of the replacement asset period (two years) you can choose the retirement exemption instead. For those gains you do not need to meet the basic conditions again but you must meet the retirement exemption conditions.
Example: small business rollover
Instead of choosing the retirement exemption, Lana 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 reduce her capital gain remaining after all other concessions have applied ($3,500) to nil.
After six months, Lana acquires another small parcel of land immediately adjoining the main business premises to use in her business. The replacement land costs $10,000, and it was her active asset before the end of the replacement asset period, so she meets the further conditions.
End of exampleThe $3,500 remaining capital gain disregarded under the small business rollover is only a deferral of the capital gain. This deferred capital gain may later become assessable if Lana:
- sells the land
- stops using it in her business.
However, she could then choose a further small business rollover if she acquired another replacement active asset. Alternatively, Lana could choose the retirement exemption.