Edited version of your written advice

Authorisation Number: 1051194669932

Date of advice: 22 February 2017

Ruling

Subject: Capital gains tax - small business concessions

Question 1

Are you eligible for the small business concessions in relation to your interest in the property acquired in 199X?

Answer

Yes.

Question 2

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 to allow the small business capital gains tax (CGT) concessions to be applied in relation to the interest acquired from your deceased spouse?

Answer

Yes.

This ruling applies for the following period:

The year ended 30 June 201X.

The scheme commences on:

January 199X.

Relevant facts and circumstances

Your spouse passed away in 200X.

In 199X, you and your spouse acquired a property (the property), as joint tenants.

The property is a number of acres.

A number of improvements were added to the property including sheds, bores, fences, and town water.

You and your spouse carried on a business of livestock breeding and sales from 199X until 200X.

You have stated that you suffered severe shock upon the death of your spouse.

You have stated that you have continued to suffer symptoms of depression for years after the event.

You were unable to operate the business on your own and engaged another entity to auction the property in 200X.

You paid that entity an amount to advertise and auction the property.

The property was advertised in a number of newspapers with colour photographs.

At the auction, only one bid was received.

You did not consider this to be reasonable, as you had been advised by your agents that the property was worth somewhat more than the bid received.

The property was passed in and the property was put back on the market.

You continued the business until all of the stock were sold later in 200X.

The property remained on the market for several years, and was advertised mainly online.

In 201X, you sold a part of the property for an amount.

Since the sale in 201X, your preferred agent has continued to advertise the remainder of the property online with photos.

You currently have two blocks remaining.

You have been advised by your agents that one block is worth a particular amount.

In 201X, you received an offer for that block.

You are prepared to accept an amount in relation to that block.

The other remaining has power, town water, fencing, bore and shed.

This block is currently drawing no interest.

You are currently over 55 years of age.

The business had an aggregated turnover of less than $2,000,000.

Your maximum net asset value does not exceed $6,000,000.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 Section 152-80

Income Tax Assessment Act 1997 Subsection 152-80(3)

Reasons for decision

Question 1

Summary

You are eligible to claim the small business concessions in relation to your original interest in the property, you acquired in 199X.

Detailed reasoning

Small business concessions

To qualify for the small business concessions, you must satisfy several conditions that are common to all the concessions. These are called the basic conditions.

The basic conditions in Subdivision 152-A of the ITAA 1997 which are relevant to you are:

● the maximum net asset value test; and

● the active asset test.

Maximum net asset value test

You satisfy the maximum net asset value test if, just before the CGT event, the sum of the following amounts does not exceed $6,000,000:

(a) the net value of the CGT assets of yours;

(b) the net value of the CGT assets of any entities connected with you;

(c) the net value of the CGT assets of any affiliates of yours or entities connected with your affiliates (not counting any assets already counted under paragraph (b)).

In your case, you satisfy the maximum net asset value test.

Active asset test

The active asset test is satisfied if:

● 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 test period detailed below, or

● 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 7.5 years during the test period.

The test period is from when the asset is acquired until the CGT event. If the business ceases within the 12 months before the CGT event (or such longer time as the Commissioner allows) the relevant period is from acquisition until the business ceases.

A CGT asset is an active asset if it is owned by you and is:

● used or held ready for use in a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or

● an intangible asset that is inherently connected with a business carried on (whether alone or in partnership) by you, your affiliate, your spouse or child, or another entity that is connected with you, carries on; for example, goodwill.

Application to your situation

In your case, you satisfy the active asset test in relation to your interest acquired in 199X as you have held the interest in the property for more than 15 years and it has been used for more than 7.5 years in the business of livestock breeding and sales during this period. The subsequent interest in the property you acquired in 200X will not satisfy the active asset test as it will have been an active asset for two years out during your ownership period of approximately 12 years from 200X to 201X.

CGT concessions

Individuals (including partners in partnerships) may be able to reduce any capital gain in the following sequence. First you offset capital losses against capital gains. Then you apply:

● the small business 15-year exemption if applicable

● the CGT discount

● the small business CGT concessions.

The small business 15-year exemption takes priority over the other small business concessions and the CGT discount. If the small business 15-year exemption applies, you entirely disregard the capital gain so there is no need to apply any further concessions.

15 year exemption

You can disregard a capital gain from a CGT event happening to a CGT asset you have owned for at least 15 years if you:

● satisfy the basic conditions for the small business CGT concessions;

● continuously owned the CGT asset for the 15 year period ending just before the CGT event happened; and

● you are over 55 at the time of CGT event and the event happens in connection with your retirement.

In your case, you satisfy the conditions in relation to your interest acquired in 199X as you satisfy the basic conditions, have held the property for at least 15 years, are over 55 years old and have ceased operating the business. You satisfy the conditions for the 15 year exemption and can disregard any capital gain you make on the sale of the property in relation to your interest acquired in 199X.

Question 2

Summary

The Commissioner will exercise his discretion under subsection 152-80(3) of the ITAA 1997 to extend the time period to DDMMYY.

Detailed reasoning

Commissioner's discretion

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 this case, we consider that a reasonable explanation for the delay in the disposal of the farming property has been provided. Additionally we consider that continuing efforts were made to dispose of the property. We do not consider that allowing this request would cause the unsettling of others or that there is any mischief involved.

Accordingly, the Commissioner will exercise his discretion under subsection 152-80(3) of the ITAA 1997 to extend the time period to DDMMYY.

Further issues for you to consider

This ruling has not fully considered your eligibility for the small business CGT concessions. You should ensure that you satisfy the relevant conditions for the concessions. More information is available in the publication Capital gains tax concessions for small business, which is available on our website www.ato.gov.au.

The Commissioner's discretion does not extend to the remaining XX and X acre blocks which you still own.

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