Edited version of your written advice

Authorisation Number: 1012903500685

Date of advice: 12 November 2015

Ruling

Subject: Small business concessions

Question 1

Are you eligible for the small business 15-year exemption to disregard any capital gain you make on the disposal of your farming property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

During 19XX you acquired a farming property jointly with your spouse and operated a farming business in partnership.

In 20YY your spouse died and their ashes were spread on the land you had jointly owned.

You continued the farming business until early 20ZZ when you leased the land to one of your children. You remained living in the farm house. You planned to sell the farming property, but did not progress the plans because of grief and your emotional attachment to the land.

In late 20WW your ill health necessitated moving to the nearest town. You engaged a real estate agent to value the property to prepare for sale. You did not proceed at that time because of your illness, your continuing grief and emotional attachment to the property.

In late 20WW the house on the farming property, your former residence, was rented to tenants.

You have given enduring power of attorney to your two children (Child A and Child B), specifying that they act jointly.

In mid-20VV they obtained an updated valuation of your farming property and a real estate agent started to prepare the necessary paperwork. Child A was not happy with the arrangements and a couple of months later another agent was chosen.

Discussions with that real estate agent continued. A proposal was completed, photographs were taken and paperwork prepared but Child A became unwilling to sell. Child B is keen to sell the farming property to fund your residential aged care accommodation payments.

Child B has commenced action to have Child A removed as power of attorney so that they can proceed to sell the farming property. Child B anticipates a sale will be finalised before a specific date.

The tenant of the farm house has been advised that their lease will not be renewed when it ends in 20VV.

You satisfy the maximum net asset value test.

You are over 55 years old. Your spouse was over 55 years old at the time of their death.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 108-7.

Income Tax Assessment Act 1997 Section 128-50.

Income Tax Assessment Act 1997 Subdivision 152-A.

Income Tax Assessment Act 1997 Section 152-10.

Income Tax Assessment Act 1997 Section 152-80.

Income Tax Assessment Act 1997 Section 152-105.

Reasons for decision

Summary

You qualify for the small business 15-year exemption and can disregard any capital gain you make on the disposal of the property.

Detailed reasoning

Section 152-105 of the Income Tax Assessment Act 1997 (ITAA 1997) provides a small business 15-year exemption for individuals. Under this section, you can disregard the capital gain made on the disposal of a CGT asset if you:

(a) satisfy the basic conditions for the small business CGT concessions in Subdivision 152-A of the ITAA 1997

(b) continuously owned the CGT asset for the 15-year period ending just before the CGT event, and

(c) are at least 55 years old at the time of the CGT event and the event happens in connection with your retirement, or are permanently incapacitated at that time.

The disposal of a CGT asset is a CGT event.

You and your late spouse purchased your farming property as joint tenants. Section 108-7 of the ITAA 1997 applies so that you were both treated as if you each owned a separate asset, being an equal interest in the farming property. When your spouse died, section 128-50 of the ITAA applied so that you were taken to have acquired their share of the farming property on the day they died.

Consequently, your ownership of the farming property is made up of two separate interests. The first was acquired in 19XX. The second was acquired in 20YY.

The interests remain separate CGT assets for capital gains tax purposes. They must be looked at separately when considering whether the small business 15-year exemption applies.

19XX interest

In your case, if the sale of the property results in a capital gain the basic conditions contained in Subdivision 152-A of the ITAA 1997 are satisfied, because:

• a CGT event will occur when you dispose of the property

• you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997, and

• you owned the 19XX interest in the property for more than 15 years and the property was used in your business for a total of at least 7½ years of your ownership period.

In addition,

• you have continuously owned the 19XX interest in the property for the 15-year period ending just before the CGT event

• you are over 55 years old, and

• the disposal of the property is happening in connection with your retirement.

You qualify for the small business 15-year exemption in section 152-105 of the ITAA 1997 in relation to your 19XX interest in the farming property. You can disregard any capital gain you make on its disposal.

20YY interest

You have not continuously owned the 20YY interest in the farming property for 15 years so do not satisfy the conditions for the 15-year exemption.

However, section 152-80 of the ITAA 1997 may apply in certain circumstances so that a surviving joint tenant qualifies for the small business CGT concessions in respect of the sale of the deceased's joint interest.

Specifically, the following conditions must be met:

• an asset was owned by joint tenants and one of them dies, meaning their interest is acquired by the surviving joint tenant

• the deceased would have been able to apply the small business concessions themselves if they had disposed of the asset immediately prior to their death

• the asset is disposed of` within two year of the deceased's death unless the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997.

In your case your spouse would have been able to apply the small business 15-year concession to their share of the property had they disposed of it immediately prior to their death. Therefore, you would also have had access to the concession had you disposed of the property within two years of their death.

You will only be able to apply the 15-year CGT concession if the Commissioner extends the time period in which you can dispose of the property and still be able to apply the concession.

The Commissioner may exercise his discretion to allow an extension of time in situations where:

• there is a significant delay in obtaining probate

• the will is contested or challenged

• the complexity of a deceased estate delays the completion of administration of the estate

• a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury), or

• settlement of a contract of sale is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.

In determining whether the discretion to allow further time would be exercised, the Commissioner considers 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 your case, the delay in the disposal of the property was impacted by your grief following the death of your spouse, your illness as well as the impediment caused by Child A's unwillingness to progress a sale in their role as your power of attorney.

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

As a result you are entitled to disregard a capital gain you make on the disposal of your 20YY interest in the farming property.