CGT Rollovers Explained: Everything You Need to Know

What is a CGT Rollover?

A capital gains tax (CGT) rollover allows your to defer or disregard a capital gain or capital loss until a later CGT event happens. A CGT event refers to the different types of transactions or events that may result in a capital gain or capital loss, such as selling your business.

The deferral is achieved by deducting the chargeable gain from the cost of a new asset and can apply where proceeds are fully or partially reinvested.

Why Are CGT Rollovers Important?

In essence, CGT rollovers can benefit businesses looking to defer or disregard a capital gain or loss. With this relief, businesses can choose to roll over their gain or loss for up to two years if they buy a replacement asset or improve an original asset.

Which CGT Rollovers Apply to Me?

There are multiple types of rollovers available, which generally fall under two categories of CGT rollover relief: same-asset rollovers and replacement-asset rollovers.

The following are some key types of CGT rollovers:

1. Replacement asset rollovers

The effect of a replacement-asset rollover is that the cost of acquiring the replacement asset is replaced by the cost of acquiring the original asset. You may be able to defer a capital gain or capital loss when you replace an asset in the following circumstances:

• an individual, trustee or partner disposes of assets to, or creates assets in, a wholly owned company
• a CGT event happens to small business assets and you acquire replacement assets
• your statutory licence ends and is replaced with another statutory licence or licences which authorises substantially similar activity to the original licence or licences
• you are a financial service provider who had assets (for example, licences) replaced on transition to the financial services reform (FSR) regime
• your property is converted to strata title
• you exchange shares in the same company or units in the same unit trust
• you exchange rights or options to acquire shares in a company or units in a unit trust
• you exchange shares in one company for shares in an interposed company
• you exchange units in a unit trust for shares in a company
• a body is converted to an incorporated company
• you acquire a Crown lease
• you acquire a depreciating asset
• you acquire prospecting and mining entitlements
• you dispose of a security under a securities lending arrangement
• a trust restructure ends your ownership of units or interests
• a membership interest in a medical defence organisation (MDO) is replaced with a similar membership interest in another MDO and both MDOs are companies limited by guarantee
• you replace an entitlement to water with one or more different water entitlements.

2. Same asset rollovers

Same-asset rollovers allow your business to dispose of CGT assets to a related entity without having to pay CGT twice. You may be able to defer a capital gain or capital loss when you transfer or dispose of assets in the following circumstances:

• an individual or trustee transfers a CGT asset to a wholly-owned company
• a partner transfers their interest in a CGT asset to a wholly owned company
• a CGT asset is transferred between related companies
• a trust disposes of a CGT asset to a company under a trust restructure
• a CGT event happens because of a change to a trust deed of a complying approved deposit fund, a complying superannuation fund or a fund that accepts worker entitlement contributions
• a CGT asset is transferred from one small superannuation fund to another complying superannuation fund because of a marriage or relationship breakdown
• a trustee of a trust creates a trust over a CGT asset or transfers a CGT asset to another trust where both the transferring and receiving trusts meet certain requirements.

3. Marriage or relationship breakdown

In the event that an asset or a share of an asset is transferred from one spouse to another after their marriage or relationship breaks down, any CGT is automatically deferred until a later CGT event happens. For example, until the former spouse sells the asset to someone else.

4. Loss, destruction or compulsory acquisition of an asset

You may defer a capital gain in some cases where a CGT asset has been lost, destroyed or is compulsorily acquired.

5. Scrip for scrip

You may be able to defer a capital gain if you dispose of your shares in a company or interest in a trust as a result of a takeover.

6. Demergers

You may be able to defer a capital gain or capital loss if a CGT event happens to your shares in a company or interest in a trust as a result of a demerger.

When Should I Apply for a CGT Rollover?

As a rule of thumb, you should apply for a CGT rollover by the date you lodge your tax return for the year in which the relevant CGT event happened.

However, you may be granted an extension to apply for a CGT rollover f you lodged your tax return without being aware that:

• events had happened that required you to make a choice
• a choice was available
• a choice you made was not valid.

It’s important to keep in mind, that once you have applied for a CGT rollover, the decision cannot be reversed.

Other CGT Rollover Considerations:

Despite the availability and benefits of CGT rollovers, it is still important to consider other tax and duty obligations, such as:

• trading stock rules
• depreciation rules
• GST
• duty regimes

There is also a range of small business CGT exemptions available.

More information is available on the ATO website. For assistance in applying for a CGT rollover, or for any questions regarding CGT rollover eligibility, call the CGT specialists at PCR Accounting & Advisory today on 03 9847 7516.