Edited version of private advice

Authorisation Number: 1051908354366

Date of advice: 8 November 2021

Ruling

Subject: CGT small business concession - extension of time

Question 1

Will the Commissioner, pursuant to subsection 152-80(3) of the Income Taxation Assessment Act 1997 (ITAA 1997), grant an extension of time until XX June 20XX to apply the small business capital gains tax (CGT) concessions?

Answer

Yes.

Question 2

Will section 152-80 of the ITAA 1997 allow the legal personal representatives to apply the small business 15-year exemption to disregard the capital gain made on the disposal of the deceased's interest in the property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June XX

The scheme commences on:

X April 20XX

Relevant facts and circumstances

XX (the deceased) died on X April 20XX.

The deceased left a Will dated XX May 20XX.

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

Probate was granted from the Supreme Court.

The deceased and their late spouse acquired a property (the property) after 20 September 1985, with each holding a 50% interest.

The property was used in the partnership business since acquisition until 20XX-20XX, with the following partners, the deceased, the deceased's late spouse (prior to their death) and Person A, the deceased's relative.

Under the late spouses' will, a life interest was granted to the deceased over the late spouses' interest in the property with the remainder interest passed to Person A.

The remainder interest in the late spouse's interest in the property became a full interest for Person A on X April 20XX.

The deceased left their interest in the property to other relatives, Person B and Person C.

Person B and Person C are the legal personal representatives (LPRs) of the deceased's estate.

The LPRs obtained valuations for the property.

Person A contested the deceased's Will, and a dispute arose between the 3 relatives.

Resolution of the dispute was delayed further due to COVID-19 lockdowns and restrictions.

On X June 20XX, it was identified that the deceased's interest in the property was incorrectly transferred to Person A's after the deceased's death.

On XX July 20XX, the land title issue was rectified.

After lengthy negotiations, the dispute between the relatives was resolved and the LPRs disposed of the deceased's interest in the property on XX June 20XX.

The deceased would have met the basic conditions to apply the CGT small business concessions had their interest in the property been disposed of immediately prior to their death.

Relevant legislative provisions

Income Taxation Assessment Act 1997 section 152-80

Income Taxation Assessment Act 1997 section 152-105

Reasons for decision

Summary: Extension of time to apply the 15-year exemption capital gains tax small business concession

Detailed reasoning

Question 1

Section 152-80 of the Income Taxation Assessment Act 1997 (ITAA 1997) allows either the legal personal representative or beneficiary of an estate to apply the capital gains tax (CGT) small business concessions in respect of the sale of the deceased's asset in certain circumstances.

Specifically, the following conditions must be met:

•         The asset transfers to the legal personal representative or passes to a beneficiary;

•         The deceased would have been entitled to reduce or disregard a capital gain from a CGT event under the small business concessions, immediately before their death;

•         A CGT event occurred within two years of the deceased's death, with the exception of subsection 152-80(3) of the ITAA 1997, where the Commissioner can allow an extension of time.

The two year time limit prescribed may be extended by the Commissioner in certain circumstances. In determining whether a longer period will be allowed, the Commissioner will consider a range of factors such as:

•         whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension;

•         whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension;

•         whether there is any unsettling of people, other than the Commissioner, or of established practices;

•         fairness to people in like positions and the wider public interest;

•         whether there is any mischief involved; and

•         the consequences of the decision.

Application to your circumstances

After taking into consideration the complexity of the deceased estate, which included the delay in granting probate, the deceased's Will being contested including the dispute between the potential beneficiaries and the rectification of the land title, the Commissioner will allow an extension of time beyond two years in accordance with subsection 152-80(3) of the ITAA 1997 to XX June 20XX.

Question 2

15-year exemption

Section 152-105 of the ITAA 1997 provides that an individual can entirely disregard any capital gain if the deceased had met the requirements of the following conditions:

(a) you satisfy the basic conditions

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

(d) either:

(i) you are 55 or over at the time of the CGT event or,

(ii) you are permanently incapacitated at the time of the CGT event.

Application to your circumstances

To apply the small business 15-year exemption the deceased would have been required to meet additional conditions under section 152-105 of the ITAA 1997. The deceased satisfied the basic conditions immediately prior to their death, the deceased continuously owned their interest in the property for more than 15 years and the deceased was over 55 years at the time of their death. Therefore, the deceased would have satisfied the additional conditions to apply the small business 15-year exemption and as such would have been entitled to apply the 15-year exemption immediately prior to their death.

As the conditions under section 152-80 of the ITAA 1997 have been met and the Commissioner has granted an extension of time under subsection 152-80(3) of the ITAA 1997 until 30 June 20XX, the LPRs are entitled to apply the small business 15-year exemption to disregard any capital gain made from the disposal of the deceased's interest in the property.

Further things for you to consider

This ruling has not fully considered the deceased's satisfaction of the basic conditions to apply the CGT small business concessions; it has only addressed the requirements under sections 152-80 and 152-105 of the ITAA 1997. You should ensure that the deceased would have met the basic conditions under section 152-10 of the ITAA 1997. Further information can be found at ato.gov.au by searching QC 22655