Edited version of private ruling

Authorisation Number: 1011686679706

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Small business concessions - 15 year exemption

Question

Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997)and extend the time period for the application of the small business 15 year exemption for assessment of capital gains tax under Subdivision 152-B of the ITAA 1997?

Answer

No

This ruling applies for the following period:

1 July 2008 to 30 June 2009

The scheme commences on:

1 July 2008

Relevant facts and circumstances

The taxpayer passed away.

The estate consisted of:

· a farming property - A

· a farming property - B

· high reliability water shares

· low reliability water shares

The taxpayer was the sole owner of all the above assets as at the date of death.

All assets were owned by the deceased until death. Probate was granted.

The executor of the will was the sole owner of the assets when they were sold.

Contracts to transfer all the above assets were signed.

Sale of 'A' and the water entitlements have resulted in a capital gain, while sale of 'B' has resulted in a capital loss.

An associate used all the above assets in primary production.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 104-10(5)(a)

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 Subsection 152-10(1)

Income Tax Assessment Act 1997 Subsection 152-10(1)(b)

Income Tax Assessment Act 1997 Section 152-80

Income Tax Assessment Act 1997 Paragraph 152-80(1)(c)

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

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

Income Tax Assessment Act 1997 Section 152-100

Income Tax Assessment Act 1997 Section 152-105

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Detailed reasoning

Section 152-80 of the ITAA 1997 potentially extends the availability of the small business CGT concessions to an asset held by a legal personal representative or beneficiary. This section applies if a CGT event happens within 2 years of the individual's death (Subsection 152-80(1)(d) of the ITAA 1997). Subsection 152-80(3) of the ITAA 1997 gives the Commissioner the discretion to extend this time limit.

Paragraph 152-80(1)(c) of the ITAA 1997 states that that section only applies in the situation where, if the CGT event had happened immediately before the individual's death, then the deceased would have been entitled to reduce or disregard a capital gain under that Division.

Subsection 152-10(1) of the ITAA 1997 provides the basic conditions that must be satisfied in order to apply any of the small business CGT concessions. One of the conditions outlined in Subsection 152-10(1)(b) of the ITAA 1997 is that the event would have resulted in a gain.

If an asset was acquired before 20 September 1985, then a capital gain or capital loss is disregarded in accordance with Subsection 104-10(5)(a) of the ITAA 1997.

The deceased acquired the assets pre CGT. If they had disposed of the assets immediately before their death, then there would not have been a capital gain or capital loss as the assets were pre CGT assets in their hands. As there would have been no capital gain for them to reduce or disregard under Paragraph 152-80(1)(c) of the ITAA 1997, then Section 152-80 of the ITAA 1997 can not apply.

As the requirements of section 152-80 are not met, the Commissioner is not able to exercise the discretion within subsection 152-80(3) of the ITAA 1997.

The executor may be entitled to apply certain capital gains tax small business concessions in its own right providing the specific requirements for those concessions are met by the estate

Specifically, the estate would be required to satisfy the basic conditions under subsection 152-10(1) of the ITAA 1997.