Edited version of private advice

Authorisation Number: 1052366217641

Date of advice: 25 February 2025

Ruling

Subject: CGT - deceased estates

Question 1

Will the Commissioner exercise the discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the 2-year time period to 28 July 2024 in relation to the 50% interest in the property that the deceased acquired on DD MM 20XX?

Answer 1

Yes.

This ruling applies for the following periods:

DD MM 20XX

DD MM 20XX

DD MM 20XX

The scheme commenced on:

DD MM 20XX

Relevant facts and circumstances

The deceased and their spouse purchased a property together as joint tenants on DD MM 20XX. The property is farmland and there is no dwelling is situated on the land. A business was operated on the land from acquisition.

The deceased's spouse passed away X years later and the deceased inherited a second 50% interest in the farmland as the surviving joint tenant.

The deceased stopped operating the business X years after the death of their spouse. At this time, the property was leased to a partnership which was made up of X of the deceased's children and their spouses. The deceased had no input in the business operations conducted by the partnership.

On DD MM 20XX, the deceased passed away. Probate was not granted until approximately XX months later. The deceased's children were all executors and beneficiaries of the deceased's Will. The property was transferred to the deceased's children and to the executors of the estate as tenants in common.

The deceased's Will was challenged and the estate was unable to be administered until the dispute was resolved. A lengthy legal battle ensured between the deceased's children over the Will and, in particular, the ownership of the property.

The matter was not resolved until approximately X years after probate was granted, at which time a deed of family arrangement was signed between the children. The deed set out the terms for administering the estate, including how the property would be dealt with.

As part of the deed, an option to purchase the property was exercised by the children who had been leasing the property from the deceased through their partnership. The parties are currently preparing to effect the transfer in accordance with the terms of the deed.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-80

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

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

Reasons for decision

The rules for dealing with a deceased individual's property and the small business concessions are set out in section 152-80 of the ITAA 1997. Where a CGT event happens to an asset or interest within 2 years of individual's death, the capital gain can be reduced or disregarded in the same way that the deceased individual would have been entitled to if the CGT event had happened immediately before their death.

A CGT event must happen in relation to the CGT asset within 2 years of the individual's death under paragraph 152-80(1)(d) of the ITAA 1997. The Commissioner has the discretion to extend the 2-year time limit under subsection 152-80(3) of the ITAA 1997.

The Commissioner has considered the following factors in determining whether to exercise the discretion to extend the 2-year time limit:

•                     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 grant the extension;

•                     whether it would be prejudicial to the Commissioner to grant further time. The absence of prejudice is not enough to justify the granting of the extension;

•                     whether the decision will unsettle people other than the Commissioner or unsettle established practices;

•                     whether it is fair to people in similar positions and the wider public interest;

•                     whether there is any mischief involved; and

•                     the consequences of granting the extension.

Application to your circumstance

In this case, the deceased individual passed away on DD MM 20XX. The time limit expired 2 years after the death of the deceased. As the relevant asset has not been disposed of within the 2-year period, you will only be able to reduce or disregard the capital gain if the Commissioner grants an extension of the time limit.

The prolonged delay in disposing of the property was due to legal proceedings which ensued as a result of a dispute over the deceased's Will. As the dispute related to the ownership of the property in particular, the estate was not able to deal with the property until an agreement was formed between the parties.

The request for an extension to the time limit was received on approximately 2 years after the 2-year period ended. As the request has been received outside the 2-year period, there may be some prejudice on the Commissioner. The extension requested is significant as it is for approximately 2 years outside of the 2-year period. The circumstances of the case and explanation for the delay support the case for an extension of the time limit.

There is an acceptable explanation for the extension requested and it is fair and equitable in the circumstances to grant the extension. The decision to grant the extension is fair to those in similar positions and the wider public interest. There does not appear to be any mischief involved and no ill consequences resulting from the extension being granted.

Having considered these factors and your circumstances, the Commissioner will exercise the discretion in subsection 152-80(3) to extend the time limit to DD MM 20XX to reduce or disregard capital gains relating to the 50% interest in the property that the deceased acquired on DD MM 20XX.

We have limited our ruling to the question raised in your application being whether an extension of the time limit will be granted. The private ruling on whether an extension of the time limit will be granted was issued on the basis that the Commissioner did not consider the deceased's eligibility for the small business concessions.

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