ATO Interpretative Decision

ATO ID 2003/165

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Will an asset disposed of by a deceased person's legal personal representative (LPR) satisfy the active asset test in section 152-35 of the Income Tax Assessment Act 1997 (ITAA 1997) if the LPR did not continue to carry on the deceased person's business after their death?

Decision

No. An asset disposed of by a deceased person's LPR will not satisfy the active asset test in section 152-35 of the ITAA 1997 if the LPR did not continue to carry on the deceased person's business after their death.

Facts

The taxpayer owned a taxi licence and carried on a taxi business for many years.

In 1998, the taxpayer died intestate and more than 2 years elapsed before an administrator was appointed. The taxi business did not continue after the taxpayer's death.

The administrator entered into a contract to dispose of the taxi licence in March 2001.

Reasons for Decision

For a CGT asset to satisfy the active asset test in section 152-35 of the ITAA 1997 it must, among other things, be an active asset of 'yours' just before the earlier of the CGT event that gave rise to the capital gain (subparagraph 152-35(a)(i)) and, in certain circumstances, the cessation of the relevant business in which you used the asset (subparagraph 152-35(a)(ii)).

Under section 152-40 of the ITAA 1997 a CGT asset is an active asset at a particular time if, at that time, it is owned and used (or held ready for use) by a taxpayer or certain related entities in the course of carrying on a business or is an intangible asset that is inherently connected with a business that the taxpayer carries on.

For an asset that has devolved to a deceased person's LPR, the test is applied to the LPR. Any use of the asset by the deceased person is not relevant for this purpose.

If the LPR did not carry on the deceased person's business after their death, the CGT asset will not be an active asset of the LPR just before the CGT event, that is, its sale by the LPR, because a business was not carried on by the LPR at that time. Subparagraph 152-35(a)(i) of the ITAA 1997 is therefore not satisfied.

Similarly, subparagraph 152-35(a)(ii) of the ITAA 1997 cannot be satisfied in these circumstances because the asset was not an asset of the LPR just before the cessation of the business. Accordingly, the asset was not an active asset of the LPR at the required time and therefore the active asset test in section 152-35 of the ITAA 1997 is not satisfied.

Note: This ATO Interpretative Decision also applies in the same way where a CGT asset a taxpayer owned just before dying passes to a beneficiary in their estate and the beneficiary later sells the asset.

Year of income:  Year ended 30 June 1999 Year ended 30 June 2000 Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   section 152-35
   subparagraph 152-35(a)(i)
   subparagraph 152-35(a)(ii)
   section 152-40

Keywords
Capital gains tax
CGT assets
CGT deceased estates
CGT small business relief

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  28 March 2003

ISSN: 1445-2782