Edited version of private advice

Authorisation Number: 1052100160307

Date of advice: 2 May 2023

Ruling

Subject: CGT - small business concessions - deceased estate

Question 1

Can the Trustee for the Estate apply the small business active asset reduction and the small business retirement exemption to any capital gain made on the disposal of Block 1 as a result of section 152-80 of the Income Tax Assessment Act 1997 (ITAA 1997), where Block 1 is sold within 2 years of deceased's passing?

Answer

Yes. The deceased would have been eligible for the small business active asset reduction and the small business retirement exemption if they had sold Block 1 immediately before their death and the Estate will dispose of Block 1 within 2 years of the deceased's passing.

Question 2

Is the amount of capital gain the Estate makes on the disposal of Block 1 that can be disregarded under the small business retirement exemption limited to $500,000?

Answer

Yes. An individual's lifetime capital gains tax (CGT) retirement exemption limit is $500,000, reduced by any previous CGT exempt amounts the individual has disregarded under the small business retirement exemption. As the Estate is relying on section 152-80 of the ITAA 1997 it can only apply the small business CGT concessions to the capital gain to the same extent that the deceased could have immediately prior to their passing.

Question 3

Can the Estate apply the small business active asset reduction to any capital gain made on the disposal of Block 2?

Answer

Yes. As the Estate has continued to farm Block 2 since the deceased's passing and the aggregated turnover of the Estate is less than $2million, the Estate is a CGT small business entity. Also, CGT event A1 happened when the Estate sold Block 2, and as such, the Estate can apply the small business active asset reduction to any capital gain made on its disposal.

Question 4

Can the Estate apply the small business retirement exemption to any capital gain made on the disposal of Block 2 if the company or trust conditions in section 152-35 of the ITAA 1997 are satisfied?

Answer

Yes, the Estate will satisfy the basic conditions for the small business CGT concessions in relation to the gain made on the disposal and the Estate will also satisfy the significant individual test. As such, the Estate can apply the small business retirement exemption to the capital gain it made on the disposal of Block 2.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Individual A purchased Block 1 pre-CGT.

Individual B purchased Block 2 pre-CGT.

Both Block 1 and Block 2 were used in a primary production business operated by Individual A as a sole trader until they passed away.

Following their death, Individual A's assets devolved to Individual B who continued to use Block 1 and Block 2 in a farming business until they passed away.

The aggregated turnover from the farming business has not, and never will, exceed $Xmillion.

The Estate has obtained an ABN and will continue to run the farm until both Block 1 and Block 2 are sold.

Block 2 has been sold.

The Estate is trying to sell Block 1.

The Estate will have a CGT concession stakeholder in the income year that Block 2 was sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-80

Income Tax Assessment Act 1997 section 152-320

Income Tax Assessment Act 1997 section152-325

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