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What Happens Under the Small Business CGT Concession if I Fail to Acquire a Replacement Asset or Make a Capital Improvement After a Roll-Over?

Small Business CGT Concession and Roll-Over Rules:

CGT Event J5 occurs if, after choosing a roll-over for a capital gain, you haven’t acquired a new asset or improved an existing one by the end of the allotted time. Additionally, this event happens if:

  • The new or improved asset isn’t actively used in your business anymore (like if you’ve sold it, it’s now part of your trading stock, or it’s no longer used in your business operations).
  • If the new asset is a share in a company or a trust interest, and it fails the 80% test (unless this failure is only temporary).
  • You or a related entity aren’t significant stakeholders in the company or trust.
  • The stakeholders in the company or trust don’t have a significant (at least 90%) investment in your business. When CGT Event J5 happens, you’ll have to recognize a capital gain. This is the same amount you initially didn’t have to pay tax on because of the small business roll-over. The capital gain is counted at the end of the time you were supposed to get or improve the asset.

Example: CGT event J5
In September 2020, Luke made a capital gain of $80,000 on an active asset. He met the maximum net asset value test.

Luke disregarded the whole capital gain under the small business roll-over.

In September 2022 (the end of the 2-year period), Luke did not have any replacement or capital improved assets. CGT event J5 happens, and Luke makes a capital gain of $80,000 in September 2022.

Source – ATO/ Small Business Rollover