Edited version of private advice

Authorisation Number: 1051811879649

Date of advice: 16 March 2021

Ruling

Subject: Capital gains tax

Question

Can the Trustee disregard a capital gain made from the disposal of the land under section 152-80 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away on late 20XX.

The deceased acquired the properties prior to 20 September 1985.

The properties were used for cattle and sheep farming until early 20XX.

The properties were vacant land with no dwelling and a workable quarry.

Probate was declared on mid 20XX.

Late 20XX the parcels relating were listed for sale.

Late 20XX, a Contact of Sale was signed.

The purchaser conducted due diligence in verifying the validity of a licence with the local Council.

This delayed the settlement of the sale.

Settlement date was early 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 104

Income Tax Assessment Act 1997paragraph 104-10(5)(a)

Income Tax Assessment Act 199, subsection 128-15(4)

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 section 152-80

Income Tax Assessment Act 1997 paragraph 152-80(1)(c)

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

Reasons for decision

Unless otherwise specified, all legislative references in the following Reasons for Decision are to the Income Tax Assessment Act 1997.

Detailed reasoning

When a taxpayer acquires a CGT asset, including acquisition by inheritance, they are potentially liable for tax on any capital gain on that asset when a CGT event subsequently happens to it.

If a CGT asset is acquired before 20 September 1985, the capital gain or loss on its disposal is disregarded in accordance with paragraph 104-10(5)(a).

Where a CGT asset is used in the business of a taxpayer and the taxpayer dies, section 152-80 provides that the trustee or beneficiary of the deceased estate may be able to disregard a capital gain if the deceased person would have been entitled to disregard the gain under the small business concessions contained in Division 152.

The concession may be available if a CGT event happens in relation to the asset (for example, a disposal contract is entered into) within 2 years of the individual's death.

A capital gain made on the disposal of the land that the deceased acquired before 20 September 1985 cannot be disregarded under Division 152 as the gain would have instead been disregarded under paragraph 104-10(5)(a) as it was a pre-CGT asset.

Because there is no capital gain to be considered under the small business concessions contained in Division 152, it follows that access to the concession contained in section 152-80 is denied to the trustee.

Note, if the individual who died acquired their interest in the asset before 20 September 1985, subsection 128-15(4) states that the first element of the cost base and reduced cost base of the interest the trustee is taken to have acquired is the market value of the interest on the day the individual died. As the deceased had acquired his interest before 20 September 1985, the first element of the cost base in the hands of the trustee is the market value of the interest on the day that he died.

Any capital gain or loss on disposal would then be determined by the extent to which the consideration received on disposal in respect of his interest varied from the market value at date of death.

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