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Can a taxpayer choose the small business roll-over under section 152-410 of the Income Tax Assessment Act 1997 (ITAA 1997) for a capital gain if the replacement asset is acquired by a related entity?

No. A taxpayer can not choose the small business roll-over under section 152-410 of the ITAA 1997 for a capital gain if the replacement asset is acquired by a related entity.

A family company acquired land after 19 September 1985 and used it for primary production purposes. The land was accordingly an active asset of the company.

The land was later sold and the company wound up. A replacement active asset was acquired by the family discretionary trust and the directors of the company sought to choose the small business roll-over under section 152-410 of the ITAA 1997.

Under section 152-410 of the ITAA 1997 you can choose the small business roll-over for a capital gain if: • the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied; • you choose a replacement asset(s) within the specified time; and • the replacement asset(s) satisfies the conditions in section 152-420 of the ITAA 1997.

The basic conditions require (among other things) that: • a CGT event happens in relation to a CGT asset of yours in an income year (paragraph 152-10(1)(a) of the ITAA 1997); and • the event must (apart from Division 152) result in a capital gain (paragraph 152-10(1)(b) of the ITAA 1997).

One of the conditions in section 152-420 of the ITAA 1997 is that 'you' must acquire the replacement asset within the specified time. The replacement asset must therefore be acquired by the same taxpayer who has made the capital gain and who is seeking to choose the roll-over.

Accordingly, a taxpayer can not choose the small business roll-over under section 152-410 of the ITAA 1997 for a capital gain if the replacement asset is acquired by a related entity.