ACCA Taxation (F6) Practice Exam

What timeframe defines the maximum deferral period for gains under rollover relief?

1. 5 years from the date of acquisition

2. 10 years from the date of replacement asset acquisition

3. Until the replaced asset is sold

4. Indefinitely until sold

The correct answer is: 10 years from the date of replacement asset acquisition

The maximum deferral period for gains under rollover relief is defined as 10 years from the date of acquisition of the replacement asset. Rollover relief is a concept within capital gains tax that allows taxpayers to defer paying tax on gains made from the sale of an asset when the proceeds are reinvested into a new asset. When a taxpayer sells an asset, they may choose to acquire a similar replacement asset, allowing them to defer the gains associated with the original asset for a specified period. The specified timeframe of 10 years means that, if the replacement asset is sold within this period, the gain can still be rolled over, effectively postponing the tax liability. This timeframe encourages reinvestment in business assets and provides flexibility for taxpayers while ensuring that the government can eventually collect taxes once the replacement asset is disposed of or sold after the 10 years have elapsed. Other options provided do not accurately represent the rules and timeframes associated with rollover relief. For instance, gains that are deferred indefinitely until the asset is sold do not align with tax regulations, as there are specific limits to how long deferral can occur. Similarly, the notion of gains being deferred "until the replaced asset is sold" lacks the important context of a defined timeframe