ATO Interpretative Decision

ATO ID 2003/238 (Withdrawn)

Income Tax

• This ATO Interpretative Decision is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1997 that doesn' t apply in relation to CGT events that happen after 11:45 am, by legal time in the Australian Capital Territory on 21 September 1999. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of CGT events that happen before 11:45 am on the 21 September 1999.
  See ATO Interpretative Decision 2012/39, in respect of section 152-305 of the ITAA 1997.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Can the executor of a deceased estate, when preparing outstanding income tax returns of the deceased, make a choice to disregard a capital gain made by the deceased before their death under former subsection 118-405(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The executor of a deceased estate, when preparing outstanding income tax returns of the deceased, can make a choice to disregard a capital gain made by the deceased before their death under former subsection 118-405(1) of the ITAA 1997 (if all of the conditions in former subsection 118-405(1) of the ITAA 1997 are met).

Facts

In March 1999 the taxpayer sold an asset that was used in a business they conducted as a sole trader. When the asset was sold the business ceased. A capital gain was made on the disposal of the asset.

The taxpayer was over 55 years of age when the asset was sold. They died two years later. The taxpayer did not lodge an income tax return for the 1999 income year.

The executor of the deceased estate, in preparing the deceased's outstanding income tax returns, is seeking to choose the retirement exemption under the former subsection 118-405(1) of the ITAA 1997.

Reasons for Decision

During the 1999 year of income former subsection 118-405(1) of the ITAA 1997 allowed an individual to choose to disregard all or part of a capital gain from a CGT event if certain conditions were met.

The choice must have been made by the day the individual's income tax return for the income year in which the relevant CGT event happened was lodged, or within a further time allowed by the Commissioner (subsection 103-25(1) of the ITAA 1997).

On the death of a taxpayer, an executor, in effect, steps into the shoes of the deceased and winds up the deceased's personal affairs (Taxation Ruling IT 2622, paragraph 2). An executor is treated as a trustee for income tax purposes (subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), section 995-1 of the ITAA 1997).

There are various provisions in the tax law that provide for or require a trustee to be answerable as taxpayer for the doing of all necessary things under the law and, in the case of the estate of a deceased person, make returns that are the same (as far as practicable) as the deceased would have made (section 254 of the ITAA 1936).

Also, under section 260-140 of the Taxation Administration Act 1953, the Commissioner may in certain circumstances deal with the trustee of a deceased estate as if the trustee were the deceased person and the deceased were still alive.

As such, it is accepted that the executor of a deceased estate, when preparing outstanding income tax returns of the deceased, can make a choice to disregard a capital gain made by the deceased before their death under former subsection 118-405(1) of the ITAA 1997 (if all of the conditions in former subsection 118-405(1) of the ITAA 1997 are met).

Year of income:  Year ended 30 June 1999

Legislative References:
Income Tax Assessment Act 1997
   subsection 103-25(1)
   subsection 118-405(1)
   section 995-1

Related Public Rulings (including Determinations)
Taxation Ruling IT 2622

Keywords
Capital gains tax
CGT small business relief
Small business retirement exemption
CGT choice
Deceased estates
executor

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  11 April 2003

ISSN: 1445-2782