Edited version of private advice

Authorisation Number: 1051521154146

Date of advice: 1 June 2019

Ruling

Subject: Capital gains tax - small business concessions - extension of time

Question 1

Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit to allow the small business capital gains tax (CGT) concessions to be applied to land acquired in 20xx?

Answer

Yes.

Question 2

Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit to allow the small business capital gains tax (CGT) concessions to be applied to land acquired in 19xx?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts

The deceased passed away in 20xx. (The deceased)

The deceased acquired prior to 20 September 1985 with his sibling farming land. (property 1)

The deceased's child, ('A') acquired the interest of their relative in 20xx.

The deceased and their child acquired an additional block of land in 20xx. (property 2)

The deceased and their child conducted a primary production business on the combined land.

If the deceased had disposed of property 2 immediately prior to their death, they would have been eligible to claim the small business CGT concessions in relation to the land.

The deceased was not up to date in managing their financial affairs with many years of outstanding income tax lodgements required to be lodged.

'A' had been assisting the deceased manage the outstanding financial affairs.

'A' passed away suddenly in 20xx.

The executor of the estate approached an accountant around 20xx to complete the outstanding income tax returns and finalise the financial affairs of the deceased.

Due to the difficult personal circumstances, the requirement to reconstruct financial records, the complexities of dealing with inter connected deceased estate delays experienced in administering the estate and selling the farming land.

The executors have continued to operate the primary production business until settlement.

The farming land was prepared for sale and subsequently sold at auction with settlement occurring in 20xx.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 152-80

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

Relevant facts and circumstances

A CGT asset passes to a beneficiary in the estate of a deceased person if the beneficiary becomes the owner of the asset under the will of the deceased person or in one of the other ways outlined in section 128- 20 of the ITAA 1997.

It is considered that a CGT asset passes to a beneficiary of a deceased estate when the beneficiary becomes absolutely entitled to the asset as against the estate's trustee.

Because the administration of the estate in this case is complete, the executor is now acting in the capacity of trustee. The beneficiary is absolutely entitled to the assets of the business as against the trustee, because the beneficiary has a vested, indefeasible and absolute interest in each asset and is able to direct how each asset be dealt with.

Therefore, the assets of the deceased's business have passed to the beneficiary which means that anything done by the trustee, including the carrying on of the business and its sale, is taken to have been done by the beneficiary.

Accordingly any capital gain made on the sale of the business will be taken to have been made by the beneficiary, the beneficiary is entitled to choose the small business retirement exemption in Subdivision 152-D of the ITAA 1997 in respect of the gain, provided the other conditions for the exemption are satisfied.

Section 152-80 of the 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

·         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, and

·         a CGT event happens within 2 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 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, we consider that a reasonable explanation for the delay in the disposal of the land has been provided. We do not consider that allowing this request would cause the unsettling of others or that there is any mischief involved.

Accordingly, the Commissioner will exercise his discretion in relation to the sale of property 2 under subsection 152-80(3) of the ITAA 1997 to extend the time.

Additional Information

Pre-CGT interest in the land

Property 1 that was acquired by the deceased prior to 20 September 1985 would not have satisfied the basic conditions for the small business concessions. This is because if the deceased had disposed of this interest just prior to their death the sale would not have resulted in any capital gain. Therefore the executors are unable to apply the small business concessions to any capital gain made on the disposal.

Note that under Division 128 of the ITAA 1997 the cost base of the pre-CGT interest in the hands of the executors will be the market value of the property on the deceased's date of death