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Edited version of private ruling
Authorisation Number: 1011588894603
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Ruling
Subject: Capital gains tax (CGT) Retirement Exemption
Are the legal personal representatives or beneficiaries of the Deceased estate eligible for the Small Business CGT Concessions in relation to the CGT Retirement Exemption for the disposal of farmland by the estate?
Yes.
This ruling applies for the following period
1 July 2008 - 30 June 2009.
1 July 2009 - 30 June 2010.
The scheme commenced on
1 July 2008
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are the trustee of the estate of an individual taxpayer who passed away.
The taxpayer acquired a 50% interest in land which was used in partnership with their spouse for primary production purposes until their death.
Pursuant to their spouse's Will, the taxpayer acquired the balance of ownership of the property.
The taxpayer conducted a primary production partnership with another individual. The primary production partnership ceased.
The taxpayer passed away and probate was granted on their Will.
The land was sold crystallising a capital gain.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 152-35(1).
Income Tax Assessment Act 1997 Subsection 152-35(2).
Income Tax Assessment Act 1997 Subsection 152-80(1).
Income Tax Assessment Act 1997 Subsection 152-80(3).
Income Tax Assessment Act 1997 Section 152-300.
Does Part IVA apply to this ruling?
Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA of the ITAA 1936 applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.
If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.
For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.
Reasons for decision
When an individual dies, section 152-80 of the ITAA 1997 allows their legal personal representative or a beneficiary to access the small business CGT concessions to the extent that the deceased would have been able to access them just before they died.
In order to apply the concessions the CGT events must happen in relation to the CGT assets within two years of the individual's death. This time limit may be extended by the Commissioner under subsection 152-80(3) of the ITAA 1997.
Subsection 152-35(1) of the ITAA 1997 advises that a CGT asset satisfies the active asset test if:
(a) you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period specified in subsection (2); or
(b) you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7½ years during the period specified in subsection (2).
Subsection 152-35(2) of the ITAA 1997 advises the period:
(a) begins when you acquired the asset; and
(b) ends at the earlier of:
(i) the CGT event; and
(ii) if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows - the cessation of the business.
Section 152-300 of the ITAA 1997 advises that you can choose to disregard a capital gain from a CGT event happening to a CGT asset of your small business if the capital proceeds from the event are used in connection with your retirement.
There is a lifetime limit of $500,000 for all choices that can be made in respect of an individual under this Subdivision.
Application to your circumstances
According to the information you have provided the land satisfies the active asset test, as the asset was held by the taxpayer for in excess of seven of the eight years as an active asset, thereby meeting the requirements of paragraph152-35(1)(a) of the ITAA 1997.
As the legal personal representative or beneficiary of the late taxpayer you are entitled to access the small business CGT concessions to the extent that the deceased would have been able to access them just before they died.
The land was sold within two years of the taxpayer's death.
According to the information you have provided the value of the capital gain on sale of the property after applying 50% general discount and 50% active asset reduction is less than $500,000.
Therefore, as the legal personal representative of the Deceased Estate, you are eligible for the Small Business CGT Concessions in relation to the CGT small business retirement exemption for the disposal of land by the estate.
The lifetime limit of $500,000 for the taxpayer is to be effectively applied to the Deceased Estate.
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