Tax Laws Amendment (2006 Measures No. 7) Act 2007 (55 of 2007)

Schedule 1   Small business relief for CGT events

Income Tax Assessment Act 1997

12   Sections 104-185 and 104-190

Repeal the sections, substitute:

104-185 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2

(1) CGT event J2 happens if you choose a small business roll-over under Subdivision 152-E for a *CGT event that happens in relation to a *CGT asset in an income year and:

(a) you *acquire a replacement asset (the replacement asset ), or you incur *fourth element expenditure in relation to a CGT asset (also the replacement asset ), or you do both, by the end of the period (the replacement asset period ) starting one year before, and ending 2 years after, the last CGT event in the income year for which you obtain the roll-over; and

(b) the replacement asset is your *active asset at the end of the replacement asset period; and

(c) if the replacement asset is a *share in a company or an interest in a trust, at the end of the replacement asset period:

(i) either you, or an entity *connected with you, is a *CGT concession stakeholder in the company or trust; or

(ii) CGT concession stakeholders in the company or trust have a *small business participation percentage in you of at least 90%; and

(d) a change of a kind specified in subsection (2) or (3) happens after the end of the replacement asset period.

Note 1: The replacement asset period may be modified or extended, see section 104-190.

Note 2: There is an exception: see subsection (8).

Note 3: There may be 2 or more replacement assets.

Note 4: CGT event J2 can also happen in relation to a capital gain you rolled-over under Division 17A of former Part IIIA of the Income Tax Assessment Act 1936 or Division 123 of the Income Tax Assessment Act 1997 if the status of the replacement asset changes: see section 104-185 of the Income Tax (Transitional Provisions) Act 1997.

(2) For any replacement asset that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c), the change is:

(a) the asset stops being your *active asset; or

(b) the asset becomes your *trading stock; or

(c) you make a testamentary gift of the asset under the Cultural Bequests Program; or

(d) you start to use the asset solely to produce your *exempt income or *non-assessable non-exempt income.

(3) In addition, for a *share in a company or an interest in a trust, the change is:

(a) *CGT event G3 or I1 happens in relation to it; or

(b) paragraph (1)(c) stops being satisfied.

Note: The full list of CGT events is in section 104-5.

(4) The time of the event is when the change happens.

(5) You make a capital gain equal to:

(a) if there is only one replacement asset that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c) - the amount of the capital gain that you disregarded under Subdivision 152-E (the 152-E amount ); or

(b) if there are 2 or more replacement assets that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c) and a change of a kind specified in subsection (2) or (3) occurs for all of them - the 152-E amount; or

(c) if there are 2 or more replacement assets that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c) and such a change occurs for one or more but not all of them - so much (if any) of the 152-E amount as exceeds the sum of the following:

(i) the first element of the *cost base of each of those replacement assets *acquired;

(ii) the *incidental costs you incurred to acquire each of those replacement assets (which can include giving property, see section 103-5);

(iii) the amount of *fourth element expenditure incurred in relation to each of those replacement assets;

in relation to which such a change did not occur.

(6) If *CGT event J6 has happened in relation to the small business roll-over under Subdivision 152-E, subsection (5) applies to the 152-E amount reduced by the amount of the capital gain under that event.

(7) If *CGT event J2 happens again in a later income year in relation to the small business roll-over under Subdivision 152-E, subsection (5) applies to any remaining part of the 152-E amount reduced by the amount of the capital gain under the earlier event.

(8) CGT event J2 does not happen because of paragraph (2)(a) for a *share in a company or an interest in a trust if the share or interest ceased to be an *active asset only because of changes in the *market values of assets that were owned by the company or trust when you *acquired the share or interest or incurred the *fourth element expenditure.

(9) You incur fourth element expenditure in relation to a *CGT asset if you incur capital expenditure that is included, under subsection 110-25(5), in the fourth element of the *cost base of the asset.

104-190 Modifying or extending the replacement asset period

(1) The replacement asset period is modified if your *capital proceeds for the *CGT event are increased under subsection 116-45(2) after the end of that period. Instead, you have until 12 months after you receive those additional proceeds to *acquire a replacement asset, or incur *fourth element expenditure in relation to a *CGT asset, or do both.

Note: Section 116-45 applies if you do not receive your capital proceeds despite having taken all reasonable steps to get them.

(2) The Commissioner may extend the replacement asset period, or that period as modified by subsection (1).