Types and effect of CGT roll-over of asset

The effect of a roll-over is that any capital gain or loss made because a CGT event happens to a CGT asset is disregarded. However, a capital gain or loss may later arise when a CGT event happens to the same asset or a replacement asset in respect of which the roll-over is made.

When a roll-over happens, the asset held by a taxpayer after the roll-over carries the same CGT characteristics as the asset held before the roll-over. In other words, when a pre-CGT asset is rolled over, the asset held after the roll-over remains a pre-CGT asset. When a post-CGT asset is rolled over, the asset held after the roll-over carries the same cost base or reduced cost base as the asset held before the roll-over.

Generally, a taxpayer must choose for a roll-over to happen. However, in some cases, roll-overs are compulsory.

There are 2 types of roll-overs, being replacement-asset roll-overs (¶12-150) and same-asset roll-overs (¶12-450).

The Board of Taxation is exploring opportunities to rationalise the existing CGT rollovers and associated provisions into a simplified set that have a substantially similar practical effect but are easier to use and interpret. It is considering 2 categories of rollovers, firstly where there is no underlying change in the economic ownership after the CGT event, and secondly, for involuntary disposals.

The Commissioner has issued TA 2023/1 regarding the use of a roll-over to enable an individual to access profits of a private company in tax-free form through an interposed entity while avoiding Div 7A loans.