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:
- 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.
- 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.
- 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.
- 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.
- 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.
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
- 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.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.