It is a common perception that if you make a capital gain when you sell an asset, you don’t have to pay CGT if you replace it with a similar asset.

Is this true?

We have to go to para 65 of the Eighth schedule of the Income Tax Act for the answer.

It is only true provided:

• The disposal was by law, theft or destruction and
• compensation was received and
• the compensation equals or exceeds the base cost of the asset (i.e. there was a capital gain) and
• the proceeds were used within 12 months towards buying a replacement asset and
• the replacement asset is brought into use within 3 years of the original loss.