Edited version of private advice

Authorisation Number: 1051922254138

Date of advice: 15 November 2021

Ruling

Subject: Extension of time to apply the SMB CGT concessions

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 September 20XX to apply the CGT small business concessions in relation to the disposal of the property?

Answer

Yes.

Question 2

Would the deceased have met the conditions under section 152-105 of the ITAA 1997 to apply the small business 15 year exemption immediately prior to their death?

Answer

Yes.

Question 3

Are the conditions under section 152-80 of the ITAA 1997 satisfied to allow you to apply the small business concessions to disregard the capital gain made on the disposal of the property?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

XX XXX 20XX

Relevant facts and circumstances

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

The deceased died intestate.

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

The Letters of Administration were grantedXX December 20XX naming you as next of kin of the deceased, as Legal Personal Representative of the Estate.

You and the deceased acquired equal interests in land (the property) upon the death of your relative on XX November 19XX.

The property was comprised of various land titles.

You and the deceased operated a business on the property from acquisition until XX March 20XX, when you ceased to be involved in the business and transferred your interest in the property to the deceased.

The deceased continued to operate the business as a sole trader until their death on XX September 20XX.

On XX July 20XX you engaged real estate agents.

The property had offers of sale made, however they fell through due to the inability to obtain finance.

In September 20XX, the property was transferred to you as beneficiary.

In 20XX-20XX the Property was affected by drought.

Due to COVID-19 restrictions you were unable to attend to the property in person.

As of XX September 20XX, all but 2 lots of the property have sold.

Relevant legislative provisions

Income Taxation Assessment Act 1997 section 152-10

Income Taxation Assessment Act 1997 section 152-80

Income Taxation Assessment Act 1997 section 152-105

Reasons for Decision

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

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 taking into consideration the complexity of the deceased estate, including the deceased dying intestate requiring the application for Letters of Administration, property sales falling through, drought conditions and COVID-19 restrictions, the Commissioner will allow an extension of time beyond two years to XX September 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.

Basic conditions

Section 152-10 of the ITAA 1997 contains the basic conditions that must be satisfied to be eligible to apply the CGT small business concessions. These conditions are:

(a)    a CGT event happens in relation to a CGT asset in an income year.

(b)    the event would (apart from this Division) have resulted in the gain.

(c)     at least one of the following applies:

(i)            you are a small business entity for the income year,

(ii)           you satisfy the maximum net asset value test in section 152-15 of the ITAA 1997,

(iii)          you are a partner in a partnership that is a small business entity for the income year and the CGT asset is an asset of the partnership or,

(iv)          you do not carry on a business, but your CGT asset is used in a business carried on by a small business entity that is your affiliate, or an entity connected with you.

(d)    the CGT asset satisfies the active asset test in section 152-35 of the ITAA 1997.

Application to your circumstances

To apply the small business 15-year exemption the deceased would have been required to meet the conditions under section 152-105 of the ITAA 1997.

The deceased was a small business entity at the time of their death and both interests in the property have been held for 15 years or more and used within the deceased's business for more than 7.5 years during that time, satisfying the active asset test. If immediately prior to the deceased death, the asset had been sold resulting in a gain, the deceased would have satisfied the basic conditions outlined in section 152-10 of the ITAA 1997.

The two separate interests in the property were continuously held by for more than 15 years and the deceased was over 55 years at the time of their death. The deceased would have satisfied the additional conditions to apply the small business 15 year exemption immediately prior to their death.

Question 3

The property passed to you as 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 and the Commissioner has granted an extension of time under subsection 152-80(3) of the ITAA 1997 until XX September 20XX. As the conditions under section 152-80 of the ITAA 1997 have been met you are entitled to apply the small business 15-year exemption to disregard any capital gain made from the disposal of the property.