Edited version of private advice

Authorisation Number: 1051567252678

Date of advice: 9 December 2019

Ruling

Subject: CGT small business concessions

Question 1

Will the Commissioner extend the period of time under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow the Estate further time to apply the small business concessions?

Answer

Yes

Question 2

If the assets that had been acquired by the deceased prior to 20 September 1985 are disposed of within the further time allowed by the Commissioner, can the Estate apply the 15 year exemption to disregard any capital gain on the disposal?

Answer

No

Question 3

If the assets that had been acquired by the deceased more than 15 years prior to their death but after 19 September 1985 are disposed of within the further time allowed by the Commissioner, can the Estate apply the 15 year exemption to disregard any capital gain on the disposal?

Answer

Yes

Question 4

If the assets that had been acquired by the deceased less than 15 years prior to their death are disposed of within the further time allowed by the Commissioner, can the Estate apply the active asset reduction and the retirement exemption to reduce any capital gain on the disposal?

Answer

Yes

Question 5

If the interstate asset is disposed of within the further time allowed by the Commissioner, can the Estate apply the 15 year exemption to disregard any capital gain on the disposal?

Answer

Yes

Question 6

Is the lifetime CGT retirement exemption limit $500,000 in total for the Estate?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 2020

The scheme commences on:

1 July 2019

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.

The deceased was over 55 years of age at the time of their death.

The deceased conducted a business through a family trust (the Trust). The deceased controlled the corporate trustee of the Trust by majority shareholding.

The deceased had acquired a number of assets in their own name.

The Trust also had acquired some assets.

Some assets were acquired prior to 20 September 1985 (pre-CGT), however all of the assets held by the deceased were used in the business carried on by the Trust from the date of acquisition to the deceased's death.

The deceased acquired an interstate asset which was also used the business carried on by the Trust) until 19XX. From 19XX the interstate asset was used by the deceased's child.

The Trust's turnover was less than $2million in the past four income years. There are no other entities whose income would need to be included for the small business entity test.

The deceased received more than 40% of the income and capital distributions in the four financial years prior to his death.

There have been claims over the ownership of the assets and several claims have been made against the Estate in relation to the assets.

The disputes are ongoing, and the Estate intends to dispose of the assets as soon as practical once the disputes are finalised.

Since the deceased's death, the assets have been leased to an unrelated third party. The deceased's child continues to use the interstate asset.

The deceased had never accessed the retirement exemption during their lifetime.

Reasons for decision

Small business concessions for deceased estates

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

·        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 this case, taking all the relevant circumstances into account, and given the disputes relating to the ownership of the assets is ongoing, the Commissioner will exercise his discretion to extend the 2 year period. Accordingly, where the assets are disposed of within the further time allowed by the Commissioner, the Estate may access the small business concessions where the relevant requirements are met.

Pre-CGT Assets

The basic conditions for the small business concessions require, among other things, that a CGT event occurs that would, apart from the application of the small business concessions, result in a capital gain.

Had the deceased disposed of the pre-CGT assets just prior to their death, the capital gain would have been disregarded under subsection 104-10(5) of the ITAA 1997. That is, the event would not, apart from the application of the small business concessions, have resulted in a capital gain. Accordingly, 152-80 of the ITAA 1997 cannot apply to allow the Estate to access the small business concessions in relation to the pre-CGT assets.

Post CGT Assets

Assets held for more than 15 years

The deceased held the interstate asset and some of the assets for more than 15 years. If the deceased had disposed of these assets immediately prior to their death, they would have met the conditions for the 15 year exemption on the following basis:

·        The basic conditions would have been met:

-        The assets were used in the business carried on by the Trust, a connected entity (as the deceased exercised control over the trustee) and a CGT small business entity

-        The assets passed the active asset test as they were used in the Trust's business for the entire period of ownership

·        The deceased held the assets continuously for more than 15 years; and

·        The deceased was over 55 years of age (as per subsection 152-80(2) of the ITAA 1997 there is no requirement for the event to have been in connection with the deceased's retirement).

Accordingly, if the post-CGT assets held by the deceased for more than 15 years are disposed of within the further time allowed by the Commissioner, the Estate will be able to apply the 15 year exemption to disregard these capital gains.

Assets held for less than 15 years

The remaining assets licences held by the deceased were held for less than 15 years. If the deceased had disposed of these assets immediately prior to their death, they would have met the conditions for the 50% active asset reduction and retirement exemption as, as explained above, the basic conditions were met.

Accordingly, if the post-CGT assets held by the deceased for less than 15 years are disposed of within the further time allowed by the Commissioner, the Estate will be able to apply the 50% active asset reduction and retirement exemption to these capital gains. As per subsection 152-80(2) of the ITAA 1997 there is no requirement to consider a contribution to super under the retirement exemption.

Retirement exemption limit

An amount disregarded under the retirement exemption cannot exceed an individual's lifetime GCT retirement exemption limit of $500,000.

Section 152-80 of the ITAA, provides the trustee of a deceased estate (or a beneficiary) access to the CGT small business concessions to the same extent that the deceased could have applied them immediately prior to their death. On that basis, the Estate can only access the retirement exemption up the deceased's lifetime GCT retirement exemption limit regardless of how many beneficiaries may benefit from the assets. As the deceased never accessed the retirement exemption during their lifetime, the Estate can utilise the full $500,000 limit for capital gains that qualify for the retirement exemption under section 152-80 of the ITAA 1997.