CGT small business concessions: retirement exemption - roll-over of ETP if individual under 55

If an individual chooses the retirement exemption in Subdivision 152-D of the Income Tax Assessment Act 1997 (ITAA 1997) and they were under 55 just before they received an amount of capital proceeds, when must an amount be rolled over under paragraph 152-305(1)(b) of the ITAA 1997?

If an individual chooses the retirement exemption and they were under 55 just before they received an amount of capital proceeds, an amount equal to the ETP referred to in subsection 152-310(2) of the ITAA 1997 must be immediately rolled over at the later of when the choice was made and when the amount was received.

The taxpayer, a sole trader, made a capital gain from the sale of a business asset during the year of income.

The taxpayer was under 55 years of age at the time of receiving the capital proceeds and plans to choose the small business retirement exemption.

Under subsection 152-305(1) of the ITAA 1997 an individual can choose the retirement exemption and disregard all or part of a capital gain if: • the basic conditions in Subdivision 152-A of the ITAA 1997 are satisfied and, • if the individual was under 55 just before receiving an amount of capital proceeds from the CGT event, an amount equal to the eligible termination payment (ETP) referred to subsection 152-310(2) of the ITAA 1997 is rolled over into a complying superannuation fund, a complying approved deposit fund or a retirement savings account.

If an individual chooses the retirement exemption then subsection 152-310(2) of the ITAA 1997 deems the capital proceeds to be an ETP made to the individual at the later of when they made the choice and when they received the amount.

Until subsection 152-310(2) of the ITAA 1997 operates to deem the capital proceeds to be an ETP, paragraph 152-305(1)(b) of the ITAA 1997 cannot operate to require an amount equal to that ETP to be rolled over.

Thus, where a choice for the retirement exemption is made after an amount of capital proceeds is received, there is no requirement to roll-over any amount until the choice is made. Once the choice is made an amount equal to the ETP must be immediately rolled over if the taxpayer was under 55 just before receiving an amount of capital proceeds.

To satisfy this requirement the individual must pay the amount into a complying superannuation (or similar) fund no later than the day they make the choice for the retirement exemption. Failure to do this will mean the conditions are not satisfied and the retirement exemption will not be available. Taxation Determination TD 96/36 further discusses the circumstances in which an ETP will be accepted as having been 'immediately' paid to roll-over fund. However, the circumstances referred to in the Determination that might give rise to a further period being allowed to make the roll-over do not arise in the situation where an amount is deemed to be an ETP in the individual's hands.