Edited version of private advice

Authorisation Number: 1051958179682

Date of advice: 18 March 2022

Ruling

Subject: CGT - deceased estates - small business 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 30 June 2023 to sell a primary production property?

Answer

Yes.

Question 2

Can the trustee apply the small business 15 year exemption under section 152-105 of the ITAA 1997 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:

DDMM 20XX

Relevant facts and circumstances

(The deceased) died on DDMM 20XX

The deceased conducted a primary production enterprise across multiple properties in XXX and XXX

The properties in XXX were purchased before 20 September 1985.

The property regarding this ruling located in south west XXX located in the XXX Shire and purchased in 19XX.

The deceased's will appointed some of his children as executors, although one of the children died, prior to the passing of their parent (the deceased).

The estate has decided to sell one property although it has been drawn out due the following reasons:

Delays in obtaining probate valuations due to the Covid-19 pandemic.

Executors living interstate with one living in XXX and another in XXX, making travel difficult due to the Covid 19 pandemic travel restrictions.

All the properties were in the grip of drought at the time of deceased's death.

One of the properties of the estate has recently suffered flood inundation.

The deceased's spouse's general health has declined to the point that they can no longer take care of themself and their disabled child and has been placed in nursing home care.

The disabled child continues to live in the family home but with in-care assistance placing burden on the executor that lives locally.

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

These reasons for decision accompany the Notice of private ruling for The Trustee For The Estate Of The Late Jim Rod Scriven. This is to explain how we reached our decision. This is not part of the private ruling.

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 executors living intestate, delays in obtaining probate valuations, drought conditions and COVID-19 restrictions, the Commissioner will allow an extension of time beyond two years to 30 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.

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 his death and his interest in the property had been held for 15 years or more and used within the primary production business for more than 7.5 years during that time, satisfying the active asset test. If immediately prior to the deceased death, the asset would have been sold resulting in a gain, the deceased would have satisfied the basic conditions outlined in section 152-10 of the ITAA 1997.

The 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 his death.

The property passed to the beneficiaries; the deceased would have been entitled to reduce or disregard a capital gain from a CGT event under the small business concessions, immediately before his death and the Commissioner has granted an extension of time to 30 June 20XX under subsection 152-80(3) of the ITAA 1997. As the conditions under section 152-105 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.