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Ruling

Subject: The small business capital gains tax concessions

Question

Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow extra time for you to apply the small business capital gains tax (CGT) concessions?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The deceased passed away in the relevant financial year leaving all of their estate to you.

The estate included a property and the remaining portion of the family business that you did not already own.

The business operated from the property and was the sole tenant.

A solicitor advised not to deal with the estate property until 12 months after the date of death in case the will was contested.

The property was listed for sale with an agent.

The property was listed for auction and the unsuccessful auction took place in the 20XX financial year.

A proposed contract of sale fell through.

The property was then leased with an option for purchase.

A contract of sale was entered into more than 2 years after the deceased passed away.

The deceased would have been entitled to apply the small business capital gains tax concessions to the property just prior to their death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-80 and

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

Reasons for decision

When a taxpayer acquires a CGT asset, including acquisition by inheritance, they are potentially liable for tax on any capital gain on that asset when a CGT event subsequently happens to it.

In some instances, a taxpayer can reduce the capital gain made from a CGT event by applying the small business CGT concessions. Section 152-80 of the Income Tax Assessment Act 1997 (ITAA 1997) allows either the legal personal representative of an estate or the beneficiary to apply the small business CGT concessions in respect of the sale of the deceased's asset in certain circumstances.

Specifically, the following conditions must be met:

· the asset devolves to the legal personal representative or passes to a beneficiary, and

· the deceased would have been able to apply the small business concessions themselves immediately prior to their death, and

· a CGT event happens within two years of the deceased's death unless the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997.

In this case, when the deceased died the property passed to you as a beneficiary of their estate. The deceased would have been able to apply the small business concessions to this property had they disposed of it immediately prior to their death. Therefore, you would also have had access to the concessions had you disposed of the property within two years of their death.

You will only be able to apply the small business CGT concessions if the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997.

In determining whether the discretion to allow further time would be exercised, the Commissioner has considered the following factors:

· evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension)

· prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension)

· unsettling of people, other than the Commissioner, or of established practices

· fairness to people in like positions and the wider public interest

· whether any mischief is involved, and

· consequences of the decision.

In this case, your solicitor advised not to put the property up for sale until Y months after the date of death in case the will was contested. The property was listed for sale with a real estate agent on and put up for auction, but it was unsuccessful. The property remained on the market and a proposed contract of sale fell through. An agreement to lease with an option for purchase was entered into and a contract for sale was executed more than 2 years after the date of death.

Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 152-80(3) of the ITAA 1997 and allow an extension to the time limit.