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Edited version of your written advice
Authorisation Number: 1012696018949
Ruling
Subject: Small business capital gains tax concessions
Question 1
Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit for shares to be disposed of so that the small business capital gains tax (CGT) concessions can be applied?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The deceased passed away in December 2008.
Probate was not granted until September 2009 due to complications with the deceased estate (Estate).
The Estate was very large and involved various companies and trusts. Part of the Estate was involved in another estate which had been left to the deceased through their sibling's estate.
It took a significant amount of time for the Trustees to understand the Estate in order to administer it.
The Trustees were situated in location X while the Estate was in location Y, adding to the complexity of the administration process.
It took a considerable length of time for the Trustee to obtain probate in location Y, in order to be able to administer the Estate.
While dealing with the Estate, the Trustee underwent significant internal restructuring, resulting in the continual changing of personnel handling the Estate.
The shares were an active asset and eligible for the small business concession.
The Trustees received their first offer of purchase for the shares in December 2009, less than X months after probate was granted. The sale was expected to be completed by early 2010.
The Trustees required two separate valuations of the shares by third parties to ensure the offer of purchase was fair and reasonable. This process took a considerable amount of time.
The sale of the shares was finalised in May 2011, within two years of probate being granted.
Relevant legislative provisions
Income Tax Assessment Act 1997 (ITAA 1997) section 152-80
Income Tax Assessment Act 1997 (ITAA 1997) subsection 152-80(3)
Reasons for decision
Section 152-80 of the ITAA 1997 allows either the legal personal representative of an estate or the beneficiary to apply the small business CGT concessions in respect of the sale of the deceased's asset in certain circumstances.
Specifically, the following conditions must be met:
• the asset devolves to the legal personal representative or passes to a beneficiary
• the deceased would have been able to apply the small business concessions themselves if they had disposed of the asset immediately prior to their death, and
• a CGT event happens within 2 years of the deceased's death unless the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997.
In determining whether the discretion to allow further time would be exercised, the Commissioner has considered the following factors:
• evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension)
• prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension)
• unsettling of people, other than the Commissioner, or of established practices
• fairness to people in like positions and the wider public interest
• whether any mischief is involved, and
• consequences of the decision.
In considering whether to exercise his discretion, the Commissioner needs to be satisfied that there were circumstances beyond your control that prevented you from disposing of the assets within two years.
In this case, the delay in the sale of the shares was influenced by the following key factors that are considered out of your control:
• The complexity of the Estate delayed the administration of the estate by the Trustee
• It took Y months for probate to be granted to the Trustee
• Internal restructuring within the Trustee affected the efficiency of the Estate's administration.
• Internal processes of the Trustee to obtain independent valuations of the shares caused significant delay in the finalisation of the sale.
It is accepted that a genuine attempt to sell the assets within the two year time limit was undertaken. Additionally, the sale was finalised within two years of probate being granted and was less than five months after the expiration of the two year period from when the deceased passed away.
Accordingly, the Commissioner will exercise his discretion under subsection 152-80(3) of the ITAA 1997 to extend the time period to May 2011.
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