Edited version of private advice

Authorisation Number: 1051633481707

Date of advice: 10 February 2020

Ruling

Subject: Deceased estate and the small business concessions

Question

Will the Commissioner exercise the discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow an extension of time to allow the small business capital gains tax (CGT) concessions to be applied?

Answer

Yes. Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time. Further information on death and the small business CGT concessions can be found on our website, ato.gov.au by searching Quick Code QC52292.

This ruling applies for the following periods:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Deceased 1

Deceased 1 (D1) passed away in Late 20XX. D1 was older than 55 years of age when he/she died.

At the time of his/her death, D1 was the owner of a 50% interest in land.

One of those parcels is Lot X.

D1 acquired his/her interest in Lot X in late 19XX. The remaining 50% interest in Lot X was owned by D1's spouse, Deceased 2 (D2) at the same time.

Prior to his/her death, D1 was a partner in a partnership (the partnership) which operated a primary production business from Lot X, and adjoining parcels of land. From late 19XX to mid 20XX, the Partnership consisted of the following persons:

·         D1 - 50%; and

·         D2 - 50%.

From mid 20XX until his/her death in late 20XX, the partnership consisted of the following persons:

·         D1 - one third;

·         D2 - one third, and

·         Child 1 (C1) - one third.

Lot X was used by D1 in carrying on a business, in partnership with others, for a continuous period of more than 15 years from late 19XX to late 20XX.

Following his/her death in late 20XX, D1's interest in the partnership passed to C1 under the terms of his/her will.

This resulted in the farming business being operated in partnership by the following persons:

·         C1 - two thirds; and

·         D2 - one third.

The primary production business continued to be operated by the partnership from Lot X, and adjoining parcels of land, subsequent to D1's death.

Deceased 2

D2 passed away in late 20XX.

D2 was older than 55 years of age when he/she died.

At the time of his/her death, D2 was the owner of a 50% interest in Lot X.

D2 acquired his/her interest in Lot X in late 19XX as tenants in common with D1.

D2 was a partner in a partnership, which operated a primary production business from Lot X, and adjoining parcels of land.

Under the terms of his/her will, D2's interest in the primary production business passed to C1. This resulted in C1 owning 100% of the primary production business after late 20XX.

Lot X was used by D2 in carrying on a business, in partnership with others, for a continuous period of more than 15 years from late 19XX to late 20XX.

Lot X

Under the terms of the will, D1's interest in Lot X is to pass to XX of his/her children in equal shares.

C1 does not receive any interest in Lot X under the terms of D1's will; he/she received the primary production business assets instead.

D1's will imposes certain restrictions on the use of Lot X for a period of time after his/her death.

These conditions are:

·         C1 gets to lease Lot X for X years to use in the primary production business

·         At the end of the lease period C1 has the right to purchase Lot X.

The provision in D1's will are effectively mirrored in D2's will, which provides for the interest in Lot X to pass to the Beneficiaries, but C1 having rights over Lot X for the same period of time.

Actions to sell the land

It was not possible to for the executors to begin taking steps to sell Lot X until C1's purchase option expired at the end of late 20XX.

As soon as the purchase option expired had expired at the end of late 20XX, the executors began the process of listing the land for sale.

In early 20XX the executors signed a sales agreement with a real estate agent.

The executors did not receive any immediate offers to purchase Lot X.

The lack of immediate offers for Lot X was also influenced by the following factors:

·         C1 continuing to hold a lease over Lot X until mid 20XX. The inability to sell Lot X in vacant possession until mid 20XX meant that a sale was less likely to be achieved before the lease expired;

·         The drought and downturn in the primary production industry meant that purchasers of farmland were not readily found in the market; and

·         The general downturn in the property market.

The executors started to receive interest in the property and negotiating with potential purchasers in early 20XX.

The executors entered into a contract for sale of Lot X in mid 20XX.

The terms of the sale contract involved a long settlement period, with settlement to take place in early 20XX.

The long settlement period was at the request of the purchaser. The executors agreed to the long settlement period because they wanted to secure the sale of the property and the sale price was an acceptable amount.

The sale price of Lot X is $XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 152-180(3)