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Edited version of your written advice
Authorisation Number: 1051199117353
Date of advice: 6 March 2017
Ruling
Subject: Capital gains tax
Question
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 mid-20YY to allow the relevant small business capital gains tax (CGT) concessions to be applied in relation to the capital gain resulting from the sale of the property?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 20YY
The scheme commenced on
1 July 20XX
Relevant facts
Your relation had land.
The land was purchased several years ago.
The land has been used in the business.
Your relation passed away.
You inherited the land.
Following the death of your relation you suffered an illness.
Probate was granted and the land was transferred to you.
You decided to sell the land.
A formal sale agreement was entered into however the real estate agent was unable to sell the property for a period. A purchaser has now signed a contract with settlement due in mid-20YY.
The land continued to be an active asset within the business for the entire period of ownership.
Your relation met the basic conditions for the small business CGT concessions.
The deceased would have been entitled to reduce or disregard a capital gain under subdivision 152-C and subdivision 152-D of the ITAA 1997 if a CGT event had happened in relation to the land immediately before their death.
Your relation did not have the land for 15 years.
Your relation was over 55 when they died.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Division 152
Income Tax Assessment Act 1997 - Section 152-80
Income Tax Assessment Act 1997 - Subdivision 152-C
Income Tax Assessment Act 1997 - Subdivision 152-D
Reasons for decision
Section 152-80 of the ITAA 1997 allows the beneficiary of a deceased estate to apply the small business CGT concessions in respect of the sale of the deceased's CGT assets in certain circumstances.
Specifically, the following conditions must be met:
● the asset devolves to the legal personal representative, passes to a beneficiary or devolves to a trustee of a trust established by the will of the individual,
● the deceased would have been entitled to reduce or disregard a capital gain under Division 152 if a CGT event had happened to the asset immediately before their death, and
● a CGT event happens within 2 years of the deceased's death.
The Commissioner may extend the time limit under subsection 152-80(3) of the ITAA 1997.
In this case, the property is a CGT asset which passes to a beneficiary under the will.
Your relation would have been entitled to the small business 50% active asset reduction and small business retirement exemption if they had sold their business property immediately before their death.
As the CGT event did not happen within 2 years of your relation's death, an extension to this time limit needs to be considered.
The Commissioner may exercise his discretion to allow an extension of time under subsection 152-80(3) of the ITAA 1997 in situations where:
● there is a significant delay in obtaining probate
● the will is contested or challenged
● the complexity of a deceased estate delays the completion of administration of the estate
● a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury), or
● settlement of a contract of sale is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.
In determining whether the discretion to allow further time would be exercised, the Commissioner considers 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.
After considering your circumstances and the factors above, the Commissioner has exercised his discretion to extend the time limit to mid-20YY to allow the small business 50% active asset reduction and/or the small business retirement exemption to be applied in relation to the capital gain from the sale of the property.
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