Edited version of private advice

Authorisation Number: 1052252662465

Date of advice: 27 May 2024

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the timeframe for the application of section 152-80 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XZ

The scheme commenced on:

DDMM20XX

Relevant facts and circumstances

The Deceased died on DDMM20XX. You act as Executor for the Estate of the Deceased (you).

The Deceased acquired several parcels of land on DDMM20XU.

The Deceased carried on a primary production business on the land for over XX years, from the date of acquisition until the date of death, as a sole trader. The aggregated turnover for the business was under $X million in the year prior to the Deceased's death.

The Deceased had Children with their first spouse, who died in 20XV. The Deceased married again.

During the period from the 20XW year onwards, it was evident that the Deceased was unable to make informed decisions.

The Children found that there were changes to the Deceased's Will. In this regard:

• The Deceased's original Will provided for the Children to receive the assets of the Estate equally.
• A new Will provided for the new Spouse and the Children to all receive equal shares of the Estate.

There was a legal dispute due to concerns over the Deceased's mental capacity to make decisions at the time of the marriage and the execution of the new Will.

The relevant timeframe for the dispute and grant of probate was as follows:

• During the period between the reading of the Will in early 20XX to the application for Probate in late 20XX, the Executor obtained all relevant information necessary for the grant of Probate. This included establishing the assets of the Deceased and obtaining asset valuations as at the date of death which, due to the size of the Estate, took considerable time. Further, due to the impending dispute, the Executor was also asked to obtain information regarding the health and state of mind of the Deceased from the time Will 2 was made to the date of death, which also took substantial time to obtain.
• The Executor applied for Probate in late 20XX.
• Soon after, the Children filed Grounds of Objection to the grant for probate, as such, there was a caveat on the grant of probate.
• Between late 20XX and late 20XY, the dispute between the parties was being negotiated and resolved. The relevant timeframe included:
  • The Executor obtaining CGT advice in respect of the sale of the properties, which took several months due to requiring all parties' approval for the advice, obtaining historical information for the purposes of calculations (including historical valuations), and the preparation of calculations by the accountant.
  • The Executor ensuring all current market values were up to date at the request of one of the parties to the dispute.
  • The parties negotiating the dispute and arranging for mediation, which occurred in late 20XY.

• On DDMM20XY, a binding Heads of Agreement (the HOA) was signed regarding the distribution of the Estate.
• A more formal terms of settlement was then prepared to allow the withdrawal of the caveat and the grant of probate.
• Soon after this Probate was granted.
• In 20XZ, a Deed of Family Arrangement (the Deed) was signed.

A requirement of the Deed was for specific parcels of land (the Property) to be sold and proceeds paid specified beneficiaries. Soon after the Deed was executed, you sold the Property.

The contract of sale was dated DDMM20XZ, with settlement X months later. The gross capital gain derived on sale of the Property was $X.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 152-80

Reasons for decision

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997).

Question 1

Summary

The Commissioner will exercise his discretion under subsection 152-80(3) to extend the time limit within which the CGT event may happen for the Property so that you may apply section 152-80 to the capital gain arising from the sale of the Property.

Detailed reasoning

Section 152-80 allows either the legal personal representative of an estate or the beneficiary to apply the small business capital gains tax (CGT) concessions in respect of the sale of the deceased's asset in certain circumstances.

Subsection 152-80(1) applies if:

(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.

Subsection 152-80(3) provides that the Commissioner may extend the time limit in paragraph (1)(d).

The Deceased died on DDMM20XX, and you entered the contract of sale for the Property on DDMM20XZ.

Relevantly, CGT event A1 happens if you dispose of a CGT asset, and the time of the event is when you enter the contract for the disposal or if there is no contract when the change of ownership occurs.

As the disposal of the property did not occur within 2 years of the Deceased's death you will only be able to reduce or disregard the capital gain made on the disposal of the interest in the land if the Commissioner extends the 2-year time limit.

In determining whether to exercise the discretion to extend the time limit set out in paragraph 152-80(1)(d), the Commissioner has considered the following factors:

• whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension,
• whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension,
• whether there is any unsettling of people, or of established practices,
• fairness to people in like positions and the wider public interest,
• whether there is any mischief involved, and
• the consequences of the decision.

There is an acceptable explanation for the extension to the 2-year period. The dispute over the Will and resulting caveat on probate, led to significant delays that were beyond your control.

You sold the Property as required by the Deed, entering the contract of sale on DDMM20XZ, which was soon after the Deed was executed and a short period after the end of the 2-year limit.

There is no evidence of mischief, and it is accepted that the exercise of the discretion to grant the extension of time will not prejudice the Commissioner, nor cause any unsettling of people or of established practices.

The Commissioner will, therefore, exercise his discretion under subsection 152-80(3) to extend the time limit within which the CGT event may happen for the Property so that you may apply section 152-80 to the capital gain arising from the sale of the Property.

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