Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Capital gains tax - disposals of small business assets

Overview

7.1 Part 1 of Schedule 5 of the Bill will insert new Division 17A into Part IIIA of the Income Tax Assessment Act 1936 (the Act). The Division provides capital gains tax (CGT) roll-over relief for the disposal and acquisition of active assets by small businesses.

Summary of the amendments

Purpose of the amendments

7.2 New Division 17A will provide CGT roll-over relief where a small business taxpayer disposes of some or all of its active assets and acquires replacement active assets. That is, roll-over relief will be provided not only where a single asset is disposed of but also where an entire small business is disposed of by a taxpayer and another business is acquired.

Date of effect

7.3 The amendments will apply to disposals of assets on or after 1July 1997. [Item 5 of Part 3]

Background to the legislation

7.4 Currently, the CGT provisions apply where an asset acquired after 19 September 1985 is disposed of. A capital gain arises in respect of the disposal where the proceeds from disposal exceed the cost base or indexed cost base of the asset. The capital gain (net of capital losses) is required to be included as assessable income of the taxpayer in respect of the disposal year of income.

7.5 The tax liability relating to a capital gain reduces the amount of capital available to acquire replacement assets. Division 17A, the design details of which were announced by the Treasurer in the 1996-97 Budget and in his press release of 3 December 1996, will ensure that a lack of capital does not constrain the growth and development of small business.

7.6 The amendments will, in certain circumstances, allow a small business taxpayer to elect to defer the CGT liability relating to a capital gain made on the disposal of an active asset. Upon making the election, the capital gain is not to be included in the taxpayer's assessable income in respect of the disposal year of income. The provisions will instead require the capital gain (net of any capital losses) to be applied in reduction of the cost bases of newly acquired replacement active assets.

Explanation of the amendments

Criteria for roll-over relief

7.7 A roll-over asset is an asset disposed of by a taxpayer whose assets' (including assets of entities connected with the taxpayer) net value does not exceed $5 million. [New subsection 160ZZPL(7); new section 160ZZPP]

7.8 Further, the following conditions are required to be met in relation to a roll-over asset of a taxpayer [new subsection 160ZZPQ(1)] :

(a)

a capital gain would otherwise accrue to the taxpayer as a result of the disposal (notional capital gain) (see under 'gross roll-over amount' in paragraph 7.38 below for further discussion);

(b)

the asset was an active asset at the disposal test time ;

(c)

if the asset was not an active asset at the disposal test time, it was an active asset immediately before the business (in respect of which the asset was used) ceased to be carried on not more than twelve months before the disposal test time;

(d)

the asset was an active asset during more than one half of the period in which it was owned by the taxpayer; and

(e)

the asset had not been the subject of roll-over under this Division within five years before the disposal test time;

7.9 Finally, a taxpayer will be required to make an election in writing for the Division to apply. The election must be made on or before the date of lodgement of the taxpayer's return for year of income in which the disposal of a roll-over asset occurred.

Maximum net value of assets of a taxpayer and related persons

7.10 The roll-over relief will only apply where the threshold criteria listed in section 160ZZPP are satisfied. These criteria must be satisfied at the disposal test time [new paragraph 160ZZPL(7)(b)] . The disposal test time is the time immediately before the disposal of the relevant roll-over asset [new section 160ZZPK] .

7.11 The first criterion is that the net value of a taxpayer's assets (see paragraph 7.16 below) must not exceed $5 million [new subsection 160ZZPP(2)] . Secondly, the sum of the net values of the assets of:

(a)

the taxpayer;

(b)

any entities connected with the taxpayer (for meaning of 'connected' see paragraphs 7.18 -7.25 below); and

(c)

where the taxpayer and/or an associate of the taxpayer is a partner in a partnership not connected to the taxpayer, their share of the net value of the assets of the partnership,

must not exceed $5 million [new subsection 160ZZPP(4)] .

7.12 Both criteria must be satisfied at the disposal test time in order for roll-over relief to be available under the new Division 17A. For example, Division 17A will not apply where the net value of a taxpayer's assets is $6 million even though the sum of the net value of the assets under the second criterion is $4 million.

7.13 An additional criterion applying only where the asset disposed of is an asset of a partnership is that the net value of the partnership's assets must not exceed $5 million [new subsection 160ZZPP(3)] . The effect of this and the second criteria is that only a partner's (including an associate's) direct interest in the partnership will be taken into account unless the taxpayer is either connected with the partnership or the asset disposed of is a partnership asset.

Net value

7.14 The net value of assets is the sum of the market values of the assets of an entity less the sum of the liabilities of the entity that relate to those assets [new subsection 160ZZPP(5)] . Specifically excluded, however is a liability that relates to an asset excluded for the purposes of the $5 million threshold by paragraphs 160ZZPL(1)(a) to (d). For example, a loan incurred by an individual taxpayer (not acting as trustee) for the purpose of acquiring a personal asset is excluded. This would be so even if the loan was secured against an asset of the taxpayer's business.

Entity

7.15 An entity for the purposes of this Division means an individual, partnership, company or trust [new section 160ZZPK] .

Asset

7.16 An 'asset' in relation to an entity is defined in new subsection 160ZZPL(1) to mean an asset as defined in section 160A in Part IIIA of the Act but includes all types of motor vehicles and also part of an asset. However, where a taxpayer is an individual (not acting as trustee), assets will not include those owned by the taxpayer that are being used solely for the personal use and enjoyment of the taxpayer or associates. In other words, assets that are intended to be used but not actually used as personal assets are not excluded from the definition of 'asset'. Assets, in relation to an individual, will also not include a policy of life assurance of a person or a right to payments or assets of a superannuation fund or approved deposit fund. The exclusion will prevent personal assets of individual taxpayers from being included for the purposes of the $5 million threshold.

7.17 In addition, the assets of an entity will not include shares, units or other interests (except investments which constitute debt) in another entity connected with the first entity [new subsection 160ZZPL(2)] . Where two entities are connected, the net assets of the entities (including a controlling entity's investment in another entity) will be aggregated in determining whether the threshold test under section 160ZZPK is satisfied. If the entities are connected because an entity controls the other entity, the value of the controlling entity's investment in the other entity will be reflected in the net value of the other entity. Since the net value of the assets of both entities is required to be aggregated for threshold purposes, the value of the controlling entity's investment is excluded to prevent double counting. There is, however, no need to exclude any debt investments the controlling entity may have in the other entity since upon aggregation, the net value of a debt investment of the controlling entity will be nullified by the value of the debt reflected as a liability of the other entity.

Entity connected with taxpayer

7.18 The determination of whether an entity is connected with a taxpayer is outlined in new section 160ZZPN . This provision is designed to ensure all of the business interests of a taxpayer are taken into account in determining whether the taxpayer is in fact a small business.

7.19 An entity is connected with a taxpayer if:

•

the taxpayer controls the entity;

•

the taxpayer is controlled by the entity;

•

the taxpayer and the entity are each controlled by the same entity. [New subsection 160ZZPN(1)]

7.20 An entity ('first entity') is deemed to control another entity in the following circumstances [new subsection 160ZZPN(2)] :

(a)

where the first entity and/or its associates beneficially own, or have the right to acquire the beneficial ownership of, interests in the other entity that carry the right to receive at least 50% of any distribution of income or capital made by the other entity;

(b)

where the first entity and/or its associates beneficially own, or have the right to acquire the ownership of, shares in a company that carry the right to exercise at least 50% of the voting rights in the entity;

(c)

where the other entity is a discretionary trust, the first entity is the trustee of the trust or an entity which has influence over the exercise of the power of the trustee or trustees to make distributions of income or capital. This will be the case unless all of the following criteria are satisfied:

(i)

the discretionary trust is the taxpayer (ie the entity disposing of a roll-over asset);

(ii)

a beneficiary of the discretionary trust is deemed to control the trust because of the operation of a provision of section 160ZZPN; and

(iii)

the trustee or an entity which has influence over the exercise of the power of the trustee and the beneficiary are not associates (see paragraph 7.22 for further discussion). [New subsection 160ZZPN(3)]

7.21 The first entity is also deemed to control another entity where the first entity and/or its associates beneficially own or have the right to acquire between 40% and 50% of the income, capital or voting rights of the other entity. The first entity is also deemed to control a company where the entity and/or its associates beneficially own, or have the right to acquire the ownership of, shares in the company that carry the right to exercise between 40% and 50% of the voting rights in the company. The deeming rules discussed in this paragraph will not apply, however, if the first entity satisfies the Commissioner that the other entity is controlled by a person or persons other than the first entity and/or its associates. [New subsection 160ZZPN(4)]

7.22 In the case of a discretionary trust, each of its objects is deemed to be entitled to acquire an interest in the capital or income of the trust. The amount of the entitlement is deemed to be the maximum amount of income or capital of the trust which the trustee could distribute to the beneficiary under the trust deed [new subsection 160ZZPN(5)] . Where the beneficiary is deemed to be entitled to acquire an interest in at least 40% of the capital or income of the trust, subsection 160ZZPN(2) and (4) could apply to deem the beneficiary to control the trust. As mentioned earlier, a trustee of a discretionary trust (or an entity which has influence over the exercise of the power of the trustee or trustees to make distributions of income or capital) is deemed not to control the trust where all the conditions set out in paragraph 7.20(c) are satisfied [new paragraph 160ZZPN(2)(c)] . To illustrate, a beneficiary being deemed to be entitled to, say, 60% of the income of the trust by the operation of subsection 160ZZPN(5) will be deemed by paragraph 160ZZPN(2)(a) to also control the trust. However, where the conditions outlined in paragraph 7.20(c) are satisfied, the trustee (or the entity with influence over the trustee's power to make distributions) will not be deemed to control the trust.

7.23 Control includes direct and indirect control. For example, where a taxpayer controls a company which in turns controls a trust, the taxpayer will be treated as controlling that trust. [New subsection 160ZZPN(6)]

7.24 To avoid exceedingly complex tracing requirements, however, where there is an interposed public entity between two entities, the entity ('first entity') deemed to control the public entity is taken not to control any other entity directly or indirectly controlled by the public entity. An exception to this rule is where the other entity is taken to be controlled by the first entity directly, or where control is indirect, there is no public entity interposed between the first entity and the other entity [new subsection 160ZZPN(7)] . To illustrate, if an entity (E1) is deemed to control a public entity (E2) which in turn controls another entity (E3), E1 will not be deemed to control E3 merely because of the operation of new subsection 160ZZPN(6). However, E1 will be deemed to control E3 if E1 controls E3 directly (say because E1 beneficially owns shares that carry a right to 50% of the voting rights in E3).

7.25 Broadly, a public entity is defined in section 160ZZPK as a company, mutual insurance organisation or unit trust whose shares or units are publicly traded.

Associates

7.26 For the purposes of the measure, an associate of a taxpayer is an entity that acts in accordance with the directions of the taxpayer or could be reasonably expected to do so [new subsection 160ZZPM(1)] . In addition, an associate is an entity which acts in concert with the taxpayer or could be reasonably expected to do so. In relation to partnerships, no partner is taken to be an associate merely because of the 'in concert' rule [new subsection 160ZZPM(2)] . In relation to a trust, the trust is taken to be an associate of a taxpayer if a trustee of the trust acts in accordance with the directions of the taxpayer or could be reasonably expected to do so [new section 160ZZPK] .

7.27 Where a taxpayer is an individual, an associate of the taxpayer includes the spouse of the taxpayer or a child of the taxpayer under eighteen years of age [new paragraph 160ZZPM(1)(a)] .

Active assets

7.28 Roll-over relief is only available for the disposal of an active asset. An active asset is one which, at a particular point in time, is used by the taxpayer in carrying on a business. Some examples would include plant, machinery and a factory of a manufacturing business. An active asset also includes an asset which is held ready for use in that business or an intangible asset which is inherently connected with the business, such as goodwill. [New subsection 160ZZPL(3)]

7.29 It is specifically provided that active assets do not include shares in companies and interests in trusts. Assets whose predominant use is to derive interest income, annuities, rent, royalties or foreign exchange gains are also not active assets [new subsection 160ZZPL(4)] . However, an asset which is a replacement asset (discussed below) will not be precluded from being an active asset by virtue of paragraph 160ZZPL(4)(c) if the asset is used predominantly to derive rent on a temporary basis [new subsection 160ZZPL(5A) . An example would be where the owner of a taxi licence who operates a taxi business decides to lease the licence for a short period in order to take a holiday. As long as the asset is held ready for use by the taxpayer in the carrying on of a business, it will continue to be an active asset as long as the period in which the asset is predominantly used to derive rent is only temporary.

7.30 Whether a period of rental use qualifies as temporary depends on the individual circumstances of the taxpayer. If the period of rental use turns out to be longer than expected, so that it cannot be concluded that the rental period is temporary, the replacement asset will be taken to have ceased to be an active asset when the asset was first used to predominantly derive rent. Accordingly, section 160ZZPX will deem a capital gain to accrue to the taxpayer at that time.

7.31 In addition, the exclusion in subsection 160ZZPL(4) will not apply to an asset disposed of by the taxpayer where the market value of the asset substantially appreciated because of the taxpayer's efforts in substantially developing, altering or improving the asset. For example, a taxpayer may have created and developed a valuable trade name which it licensed out to others for royalty income. The trade name is not precluded from being an active asset upon its disposal. Whether the trade name is an active asset, however, depends on whether the asset is used, or held ready for use, by the taxpayer in carrying on a business or whether the asset is an intangible asset which is inherently connected with the business.

7.32 Active assets also do not include financial instruments such as loans, debenture stock, futures contracts, forward contracts, currency swap contracts and promissory notes.

Replacement assets

7.33 A taxpayer who has one or more roll-over assets in a year of income can nominate one or more replacement assets. A replacement asset for a year of income has to be one that is:

(a)

an active asset; and

(b)

acquired by the taxpayer within the period beginning one year before and ending two years after the last disposal of a roll-over asset in the year of income. [New subsection 160ZZPT(1)]

7.34 A replacement asset does not include an asset whose disposal would not be covered by the CGT provisions due to the exclusions in section 160L. Examples of this would be trading stock and, in relation to a non resident, assets which are not taxable Australian assets as defined in section 160T. A replacement asset will also not include an asset to be used solely to produce eligible exempt income. This is because the capital gain on the disposal of that asset is not subject to CGT (subsection 160Z(6)). [New section 160ZZPK]

7.35 Finally, a provision of Part IIIA may deem that an asset has been disposed of. Paragraph 160ZZOA(1)(d) is an example of such a provision. A taxpayer cannot nominate that asset as a replacement asset. In other words, a taxpayer cannot nominate as a replacement asset an asset which was disposed of or deemed to have been disposed of, and immediately reacquired. [New subsection 160ZZPT(2)]

7.36 A taxpayer may dispose of a roll-over asset and purchase an asset which is to be used as an active asset so long as the asset becomes an active asset by the end of two years from the disposal of the roll-over asset [new subsection 160ZZPL(6)] . This will allow the taxpayer a period of time to commence using the asset actively in the business.

7.37 If there is a net roll-over amount (see paragraphs 7.40 and 7.42) in respect of a year of income and the taxpayer does not nominate any replacement assets for that year, the net roll-over amount will be a capital gain for that year of income. [New subsection 160ZZPT(5)]

Calculation of roll-over amount

Gross roll-over amounts

7.38 Where a capital gain (referred to as the notional capital gain) would but for these amendments have accrued to a taxpayer on the disposal of a roll-over asset, and the asset was not goodwill, then the taxpayer has a gross non-goodwill roll-over amount equal to the notional capital gain [new subsection 160ZZPQ(3)] . If the roll-over asset is goodwill, the taxpayer has a gross goodwill roll-over amount equal to the amount of a capital gain that would have been taken to have accrued to the taxpayer in respect of the disposal but for this Division. That is, the amount of the capital gain is calculated without taking into account the 50% reduction of the accrued capital gain under section 160ZZR of the Act [new subsection 160ZZPQ(4); item 2 of Part 1] . This distinction between non-goodwill and goodwill roll-over amounts is necessary because a non-goodwill roll-over amount cannot be used to reduce the cost base of a goodwill replacement asset [new subsection 160ZZPV(3)] .

7.39 New subsection 160ZZPQ(2) prevents the other CGT rules within Part IIIA of the Act from applying to the capital gain on the disposal of a non-goodwill or goodwill roll-over asset. In addition, if a taxpayer makes an election for roll-over relief under these measures in relation to the disposal of goodwill, section 160ZZR does not apply to reduce by half an amount of capital gain that accrued to the taxpayer in respect of the disposal of goodwill [item 2 of Part 1] .

Net roll-over amounts

7.40 A gross non-goodwill roll-over amount (or if there is more than one gross non-goodwill roll-over amount in respect of a year of income, the sum of the gross non-goodwill roll-over amounts) must first be offset against current year capital losses [determined under paragraph 160Z(1)(b)] and then against net capital losses [determined under subsection 160ZC(4)] in respect of an earlier year of income [new subsection 160ZZPR(2)] . Items 3 and 4 of Part 2 inserts notes to subsection 160Z(1) and subsection 160ZC(4) to highlight the fact that a capital loss or a net capital loss calculated under these provisions are subject to reduction under the new Division 17A. Any amount of the gross non-goodwill roll-over amount left after the losses have been offset is referred to as a net non-goodwill roll-over amount [new subsections 160ZZPR(4) and (5)] .

7.41 Prior year net capital losses must be offset in the order that they are incurred [new subsection 160ZZPR(3)] . However, a net capital loss in respect of a year of income before 1995-96 ('earlier NCL') need not be offset because the earlier NCL is reflected in the amount of a net capital loss in respect of the 1995-96 year of income to the extent that the earlier NCL had not been previously recouped. The Government's announcement in the 1996-97 Budget to change the law relating to prior year net capital losses will mean that a net capital loss in respect of the 1996-97 year of income onwards will not reflect a net capital loss of a prior year of income.

7.42 New subsection 160ZZPS applies in a similar manner to gross goodwill roll-over amounts. For example, a gross goodwill roll-over amount (or if there is more than one gross goodwill roll-over amount in respect of a year of income, the sum of the gross goodwill roll-over amounts) must first be offset against current year capital losses of the taxpayer, and then against net capital losses of the taxpayer in respect of an earlier year of income. However, losses must always be offset against non-goodwill roll-over amounts first. In other words, capital losses and net capital losses may be offset against a gross goodwill roll-over amount only to the extent the losses have not previously been offset against a gross non-goodwill roll-over amount new subsection 160ZZPS(2) . Any amount of the gross goodwill roll-over amount remaining after the losses have been offset is referred to as a net goodwill roll-over amount [new subsections 160ZZPS(4) and (5)] .

Application of net roll-over amounts

7.43 A taxpayer who has a net goodwill or non-goodwill roll-over amount may nominate replacement assets to which this amount is to be allocated. The right to allocate the roll-over amount to a particular asset is subject to a specific rule relating to goodwill (see paragraph 7.46 below). The maximum net roll-over amount that may be allocated to each nominated replacement asset is equal to the cost base of the replacement asset [new paragraphs 160ZZPU(2)(a) and (3)(a); new paragraphs 160ZZPV(2)(a) and (3)(a); new paragraphs 160ZZPW(3)(a), (4)(a), (5)(a) and (6)(a)] .

7.44 Where a taxpayer has a net goodwill or non-goodwill roll-over amount and does not nominate any replacement asset, a capital gain equal to the net goodwill or non-goodwill roll-over amount will accrue to the taxpayer in the year of disposal of the roll-over asset or assets. [New subsection 160ZZPT(5)]

7.45 If the taxpayer nominates a non-depreciable replacement asset the cost base of the replacement asset will be taken to be reduced at the time the replacement asset is acquired by the amount of a net roll-over amount allocated to the asset. If there is more than one replacement asset, the roll-over amount can be allocated to the cost bases in whichever way the taxpayer determines is appropriate subject to the rules discussed below. [New subsections 160ZZPU(2) and paragraphs 160ZZPU(3)(a) and (b); new paragraphs 160ZZPV(2)(a) and (b) and (3)(a) and (b); new subsections 160ZZPW(3)(a) and (b), (4)(a) and (b), (5)(a) and (b), (6)(a) and (b)]

7.46 A taxpayer cannot nominate goodwill as a replacement asset in respect of a net non-goodwill roll-over amount [new subsection 160ZZPT(3)] . In other words, a taxpayer can only allocate a net goodwill roll-over amount to a goodwill replacement asset. This is to prevent what would have been a capital gain in respect of a non-goodwill roll-over asset from being taxed concessionally under section 160ZZR of the Act when the goodwill replacement asset is eventually disposed of.

7.47 A taxpayer may, however, nominate an asset other than goodwill as a replacement asset in respect of a net goodwill roll-over amount. Accordingly, in the event that there is an amount of a net goodwill roll-over amount remaining after all the cost bases of nominated goodwill replacement assets are reduced to nil, the sum of the remaining net goodwill roll-over amount and any net non-goodwill roll-over amount ('residual net roll-over amount' - new subsection 160ZZPW(1) ) may be allocated to non-goodwill replacement assets. [New paragraph 160ZZPW(4)(c); new subsections 160ZZPW(5) and (6)]

7.48 If there is a net roll-over amount (goodwill or non-goodwill) remaining after the net roll-over amount has been allocated to the maximum extent possible to all nominated replacement assets, this amount is taken to be a capital gain that accrued to the taxpayer in the year of income to which the net roll-over amount relates. [New paragraphs 160ZZPU(3)(c), 160ZZPV(3)(d) and 160ZZPW(6)(d)]

Depreciable assets

7.49 A special rule applies in relation to the application of a net roll-over amount where a taxpayer nominates a depreciable asset as a replacement asset. In these circumstances, so much of a net non-goodwill roll-over amount or a residual net roll-over amount (defined in new subsection 160ZZPW(1) and referred to in paragraph 7.47 above) as the taxpayer determines ('the reduction amount') may be allocated to the depreciable asset. However, the amount allocated to a depreciable asset may not exceed the cost base of the asset at the time of acquisition.

7.50 Unlike other nominated replacement assets, the cost base of a nominated depreciable asset will not be reduced by the reduction amount. Nevertheless, the reduction amount will accrue to the taxpayer as a capital gain when the depreciable asset is eventually disposed of [paragraphs 160ZZPV(2)(c) and (3)(c), paragraphs 160ZZPW(5)(c), and (6)(c)] . Accordingly, if the depreciable asset is subsequently rolled over under Division 17A, the reduction amount will be taken into account in calculating the gross roll-over amount in relation to that subsequent roll-over.

7.51 A depreciable asset is one whose cost is allowable as a deduction to the taxpayer over a period of time, usually over several years of income [new section 160ZZPK] . A typical example is an asset whose cost is allowable under subsection 54(1). Another example is a unit of industrial property whose cost is deductible under subsection 124M(1).

Consequences of a change of status of replacement asset

7.52 Where a replacement asset:

(a)

ceases to be an active asset;

(b)

becomes an asset whose disposal would not be affected by the CGT provisions in Part IIIA of the Act because of section 160L; or

(c)

becomes an asset used by the taxpayer solely for the purpose of producing eligible exempt income referred to in subsection 160Z(6);

a capital gain will accrue to the taxpayer in the year of the change new subsection 160ZZPX(1)] . The capital gain will be equal to any net roll-over amount (the adjustment amount ) previously allocated to the asset under the new Division 17A.

7.53 If the replacement asset is not a depreciable asset, the adjustment amount will be taken to increase the cost base of the replacement asset at the time of change. Accordingly, indexation of the adjustment account for the purposes of calculating the asset's indexed cost base will occur from the time of change. [New subsection 160ZZPX(3)]

Consequences of certain disposals of replacement asset

Roll-over under another Division of Part IIIA other than section 160X

7.54 Where a nominated replacement asset is rolled over ('other roll-over') by the operation of a CGT provision that is not a provision within Division 17A, or section 160X (relating to assets of a deceased person - see below), any net roll-over amount previously allocated to the asset under this measure will accrue to the taxpayer as a capital gain in the year of income in which the other roll-over occurred. [New subsections 160ZZPY(1) and (2)]

7.55 If the replacement asset is not a depreciable asset, the adjustment amount will be taken to increase the cost base of the replacement asset at the time of roll-over under other provisions for the purposes of ascertaining whether a capital gain or capital loss in respect of the asset accrued to a person other than the taxpayer.

7.56 For example, the relevant cost base of a replacement asset rolled over to an entity ('the transferee') under section 160ZZO will be increased by the adjustment amount at the time of roll-over for the purposes of working out whether a capital gain or a capital loss accrued to the transferee in the event of a disposal of the asset by the transferee.

Roll-over upon death

7.57 Where a nominated replacement asset forms part of the estate of a deceased person and is passed to the legal personal representative ('LPR') of the deceased person, the actions of the deceased person will be taken to have been the actions of the LPR for the purposes of Division 17A. However, this rule will only apply if section 160ZZPX (relating to the change of status of a replacement asset) had never applied to the deceased taxpayer in relation to the replacement asset [new subsection 160ZZPZ(1)] . The consequences of a change in status of the replacement asset will, however, apply to the LPR as if the LPR was the taxpayer should any of the triggering events occur after the asset is passed to the LPR (eg asset ceases to be an active asset).

7.58 Similarly, where the nominated replacement asset forms part of the estate of a deceased person and is passed to the beneficiary of the deceased person, the actions of the deceased person or the LPR will be taken to have been the actions of the beneficiary for the purposes of Division 17A. Again, this rule will only apply if section 160ZZPX had never applied to the deceased taxpayer or the LPR in relation to the replacement asset [new subsection 160ZZPZ(2)] . However, the consequences of section 160ZZPX will apply to the beneficiary as if the beneficiary was the taxpayer, should any of the triggering events occur after the asset is passed to the beneficiary.

Consequential amendments

7.59 Part 2 will make amendments to provisions of the Act that are consequential upon the amendments relating to providing to small business taxpayers, roll-over relief on disposals of active assets. The consequential amendments are referred to in paragraph 7.40 above.

Miscellaneous

7.60 Section 170 of the Act will not prevent the amendment of an assessment at any time to give effect to the provisions of Division 17A.