Edited version of private advice

Authorisation Number: 1051901586217

Date of advice: 22 September 2021

Ruling

Subject: CGT - deceased estate

Question 1

Will the Commissioner, pursuant to subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997), grant an extension of time beyond two years for the sale of the property?

Answer

Yes

Question 2

Will section 152-80 of the ITAA 1997 allow the trustee to apply the small business 15-year exemption to disregard the capital gain made on the disposal of the property?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased (the deceased) died on XX September 20XX.

The deceased was over 55 years at the time of their death.

A Testamentary Trust was established pursuant to the deceased's Will dated XX October 20XX.

The deceased owned a property (the property).

The property was acquired after 20 September 1985.

The property has been used in a business since acquisition, by the deceased as a sole trader.

The business was continued by the estate until XX June 20XX.

The deceased's Will was challenged and resolved by a Court order issued XX August 20XX.

The property was listed for sale in late 20XX.

The sale of the property was impacted by drought.

The property was sold on XX August 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 104-10(5)

Income Tax Assessment Act 1997 Division 152

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-80

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

Income Tax Assessment Act 1997 section 152-105

Reasons for decision

Question 1

Taking into consideration the legal challenge to the deceased's Will and the impact of drought on the sale of the property, the Commissioner will allow an extension of time beyond two years in accordance with subsection 152-80(3) of the ITAA 1997.

Question 2

Section 152-80 of the ITAA 1997 allows either the legal personal representative of an estate or the beneficiary to apply the CGT small business 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 entitled to reduce or disregard a capital gain under this Division (Division 152 of the ITAA 1997) if a CGT event had happened in relation to the asset immediately before their death; and

•         A CGT event happens within two years of the deceased's death, unless the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997.

Basic conditions

Section 152-10 of the Income tax Assessment Act 1997 (ITAA 1997) contains the basic conditions that must be satisfied to be eligible to apply the CGT small business concessions. These conditions are:

(a)    a CGT event happens in relation to a CGT asset in an income year.

(b)    the event would (apart from this Division) have resulted in the gain.

(c)     at least one of the following applies:

(i)            you are a small business entity for the income year

(ii)           you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997

(iii)          you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership or

(iv)          you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate or an entity connected with you.

(d)    the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.

To be eligible to apply the small business CGT concessions all four of the basic conditions must be satisfied.

15-year exemption

Section 152-105 of the ITAA 1997 provides that an individual can entirely disregard any capital gain if all the following conditions are satisfied:

(a)  you satisfy the basic conditions

(b)  you continuously owned the CGT asset for the 15-year period ending just before the CGT event

(c)   you are either:

                              i.        55 or over at the time of the CGT event and the event happens in connection with your retirement; or

                             ii.        permanently incapacitated at the time of the CGT event.

Application to your circumstances

Basic conditions

The deceased acquired the property after 20 September 1985. As a CGT event happened in relation to the disposal of the property, per subsection 104-10(5) of the ITAA 1997, the deceased would have met the remaining basic conditions under section 152-10 of the ITAA 1997 (the deceased was a small business entity and the property was an active asset immediately before the deceased's death).

Under Division 152 of the ITAA 1997, the deceased would have been entitled to reduce or disregard any capital gain if the deceased had disposed of the property immediately prior to their death. Therefore, section 152-80 of the ITAA 1997 will apply to allow the trustee to apply the CGT small business concessions to the gain made on the disposal of the property.

15-year exemption

In order to be eligible to apply the small business 15-year exemption to disregard any capital gain made, the CGT asset must be continuously owned for at least 15 years just before the CGT event.

The property was owned by the deceased for more than 15 years and the deceased would have met the basic conditions immediately prior to their death. As the deceased was over 55 years old immediately before their death, it is not necessary for the CGT event to have happened in relation to their retirement. This means the deceased would have met the conditions to apply the small business 15-year concession. Therefore, under section 152-80 of the ITAA 1997, the trustee can apply the small business 15-year concession to disregard the capital gain made on disposal of the property.

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