Edited version of private advice

Authorisation Number: 1052231471520

Date of advice: 13 March 2024

Ruling

Subject:CGT - deceased estate

Question

Would the Commissioner exercise his discretion to allow time for the Estate to dispose of assets beyond the 2 year period as outlined in section 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to X December 20XX?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

28 September 20YY

Relevant facts and circumstances

The deceased died on DD MM 20YY; at the time of their death, they owned various small business assets.

Prior to the 12 month anniversary of the deceased's death, there were a number of separate family provision claims made against the Estate.

The Executor of the Estate brokered an agreement with a potential purchaser of the small business assets, by MM of 20YY there was an in principal agreement for the sale of the most significant asset of the Estate.

After the principal agreement was reached, the Executor had to receive agreement from several separate beneficiaries of the Estate.

On DD MM 20YY, agreements were received from all beneficiaries, the purchaser arranged finance for the purchase. Legal counsel was retained to draw up a contract of sale with a view to an expeditious settlement, with full confidence everything would be settled before the 2 year anniversary of the deceased's death.

On DD MM 20YY, the solicitor acting on behalf of the estate in relation of the sale of the business suffered multiple medical episodes and was hospitalised from DD MM 20YY until mid- MM 20YY.

Concurrently with these events, the principal of the firm was overseas on annual leave and as the firm is small, it was necessary for another solicitor to complete the sales process which resulted in further delays.

The assets in question were finally sold on DD MM 20YY.

The assets satisfied the active asset test as outlined in 152-35 of the ITAA 1997.

The deceased satisfied the maximum net value asset test at the time of their death

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-80

Reasons for decision

Section 152-80 of the ITAA 1997 states:

(a) a CGT asset:

(i) forms part of the estate of a deceased individual; or

(ii) was owned by joint tenants and one of them dies; and

(b) any of the following applies:

(i) the asset devolves to the individual's legal personal representative;

(ii) the asset passes to a beneficiary of the individual;

(iii) an interest in the asset is acquired by the surviving joint tenant or tenants (as the case may be) as mentioned in section 128-50

(iv) the asset devolves to a trustee of a trust established by the will of the individual; and

(c) the deceased individual referred to in subparagraph (a)(i) or (ii) would have been entitled to reduce or disregard a capital gain under this Division if a CGT event had happened in relation to the CGT asset immediately before his or her death;

and

(d) a CGT event happens in relation to the CGT asset within 2 years of the individual's death.

Section 152-80(3) of the ITAA 1997 states

The Commissioner may extend the time limit in paragraph (1)(d).

Application to your circumstances

The CGT asset forms part of an estate of a deceased individual and the asset has passed to the beneficiaries of that individual. The deceased would have been entitled to disregard a capital gain under this division had the CGT event occurred immediately prior to their death.

There is no prejudice to the Commissioner or any unsettling of people. There is no unfairness to people in like positions or the wider public and there is no mischief involved.

Based on your circumstances, those being; delays in reaching an agreement between all the beneficiaries of the estate as well as the incapacitation of your legal representative, resulting in delays to the sales process beyond your control. In addition, the sale was only just over 2 months past the 2 year limit. It is therefore fair and equitable for the Commissioner to exercise his discretion to grant an extension of time.

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