Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-3 - CAPITAL GAINS AND LOSSES: SPECIAL TOPICS  

Division 124 - Replacement-asset roll-overs  

Subdivision 124-B - Asset compulsorily acquired, lost or destroyed  

The consequences of a roll-over being available

SECTION 124-85   Consequences for receiving money  

124-85(1)    
If you receive money for the event happening, there are these consequences if you choose to obtain a roll-over.

Original asset acquired on or after 20 September 1985

124-85(2)    

If you make a *capital gain from the event, this table sets out in what situations the gain is reduced, not reduced or disregarded.

It also sets out in what situations the expenditure you incurred to *acquire another *CGT asset or to repair or restore the original asset is reduced.

You make a capital gain from the event
Item	In this situation:	There are these consequences:
1	The money exceeds the expenditure you incurred to *acquire another CGT asset or to repair or restore the original asset	If the gain is more than the excess:
		(a)	the gain is reduced to the amount by which the money exceeds that expenditure; and
		(b)	that expenditure is reduced by the amount by which the gain (before it is reduced) is more than the excess
.
2	The money exceeds that expenditure	If the gain is less than or equal to the excess, the gain is not reduced
.
3	The money does not exceed that expenditure	The gain is disregarded in working out your *net capital gain or *net capital loss for the income year. That expenditure is reduced by the amount of the gain

Example:

In 1999 Simon bought a small factory. In 2000 a fire destroys part of it. He receives $100,000 under an insurance policy.

The capital gain is worked out under section 112-30 .

Suppose the factory ' s cost base at the time of the fire is $75,000 and the market value of the part that is not destroyed is $150,000. The cost base of the part that is destroyed is:

$75,000

×

$100,000       $100,000 + $150,000

=

$30,000

The capital gain is:

$100,000 − $30,000 = $70,000

Case 1

Suppose Simon spent $80,000 on repairing the factory. The money he received under the insurance policy exceeds the repair cost by $20,000. The gain exceeds that by $50,000.

The result is that the gain is reduced to $20,000 and the $80,000 he spent on repairs is reduced to $30,000.

Case 2

Suppose Simon spent $15,000 on repairs instead. The money he received under the policy exceeds that amount by $85,000. This is more than the gain he made.

The gain is relevant to working out Simon ' s net capital gain or loss for the income year and the $15,000 he spent on repairs forms part of the factory ' s cost base.

Case 3

Suppose Simon spent $120,000 on repairs instead. The gain is disregarded and the $120,000 is reduced to $50,000.

Original asset acquired before 20 September 1985

124-85(3)    
If you *acquired the original asset before 20 September 1985 and you incurred expenditure in acquiring another *CGT asset, you are taken to have acquired the other asset before that day if:

(a) the expenditure is not more than 120% of the *market value of the original asset when the event happened; or

(b) a natural disaster happened so that the original asset, or part of it, is lost or destroyed and it is reasonable to treat the other asset as substantially the same as the original asset.

124-85(4)    
If you *acquired the original asset before 20 September 1985 and you incurred expenditure of a capital nature in repairing or restoring it, you are taken to have acquired the original asset (as repaired or restored) before that day.