Edited version of private advice

Authorisation Number: 1051902330308

Date of advice: 11 November 2021

Ruling

Subject: CGT - small business concessions

Question 1

Will the property satisfy the active asset test under section 152-35 of the Income Taxation Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Will the Commissioner exercise the discretion under subsection 152-80(3) of the ITAA 1997to extend the two year period to XX July 20XX?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

XX April 20XX

Relevant facts and circumstances

The deceased (the deceased) died on XX xxx 20XX.

The deceased left a Will dated X XXX 19XX.

Probate was granted to the Executors on XX xxx 20XX.

The deceased had children from two separate marriages and named two children, one from each marriage as the Executors of the estate.

XXX (the property) was acquired by the deceased's late spouse prior to 20 September 1985.

The deceased and the late spouse operated a business in partnership on the property from 20XX until the spouse passed away on XX XXX 20XX.

The deceased acquired the property upon the death of their late spouse and continued to operate the business on the property as a sole trader until Xxx 20XX.

In 20XX and 20XX years, the business had reduced income due to external circumstances.

Due to the deceased's decline in health, the deceased made a verbal agreement with their relative, GN, allowing GN to lease the property temporarily, initially for a X year term, with the option to extend the lease on a yearly basis.

The deceased died within the first year of the agreement and the executors agreed to allow the GN to continue operate their business on the property until the executors had finalised the estate.

After a lengthy disagreement between the beneficiaries, which lead to one of the Executors engaging legal representation, a resolution was reached and the decision to sell the property was made.

The property was sold on XX Xxx 20XX.

Relevant legislative provisions

Income Taxation Assessment Act 1997 section 152-35

Income Taxation Assessment Act 1997 section 152-40

Income Taxation Assessment Act 1997 section 152-80

Reasons for decision

Question 1

Active Asset Test

Section 152-35(1) of the ITAA 1997 states that a CGT asset satisfies the active asset test if:

•         you have owned the asset for 15 years or less and the asset was an active asset of yours for a total of at least half of the period owned; or

•         you have owned the asset for more than 15 years and the asset was an active asset of yours for a total of at least 7.5 years.

Section 152-40(1) of the ITAA 1997 provides the meaning of an active asset to be when you own the asset and it is used or held ready for use in a business that is carried on by you, your affiliate, or another connected entity.

Application to your circumstances

The deceased acquired the property from the late spouse upon their death on XX XXX 20XX. The deceased continued to use the property as a sole trader in their business from acquisition until April 20XX. Therefore, as the property was held for less than 15 years and was an active asset of the deceased's for more than half of that period, the property satisfies the active asset test under section 152-40 of the ITAA 1997.

Question 2

Subsection 152-80(3) of the ITAA 1997 allows the Commissioner to grant an extension of time to extend the two year period for the CGT event to occur. After considering your circumstances including the delay in Probate being granted and the lengthy disagreement between the executors and beneficiaries, the Commissioner will allow an extension of time for the disposal of the property to XX July 20XX.