Edited version of private advice

Authorisation Number: 1052027980667

Date of advice: 30 August 2022

Ruling

Subject: CGT small business concession

Question

Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit in paragraph 152-80(1)(d) (for a CGT event to happen in relation to the CGT asset) to 30 June 2022?

Answer

Yes

This ruling applies for the following periods:

Year of income ended 30 June 20XX

Year of income ended 30 June 20XX

Year of income ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased died in 20XX.

The CGT assets referred to in this ruling are the interests in the land that were acquired by the taxpayer in 20XX.

The interests in the land are comprised of parcels of land that were acquired by the taxpayer after 19 September 1985 or a 50% interest in parcels that were inherited as a joint tenant on the passing of their spouse in 20XX.

The CGT assets have devolved to a trustee of a trust established by the will of the taxpayer, with the land transferring from the legal personal representative (LPR) to the Trust in 20XX.

Excluded from this ruling is any interest in the land that was acquired by the deceased pre-20 September 1985.

Until a catastrophic work accident in 20XX, the taxpayer remained actively involved in the operations of the business. After the accident, the taxpayer was transferred to a hospital - for palliative care until their death in 20XX.

You assert that at the time of the taxpayer's death, the deceased would have been entitled to disregard the whole of the gain attributed to their 50% interest of the portion of land that was acquired in 19XX and held continuously for a period of more than 15 years, with all other basic conditions contained in section 152-10 and Subdivision 152-B of the ITAA 1997 being satisfied, had a CGT event occurred to the asset immediately before their death.

You also assert that the deceased would also have been entitled to disregard part of the gain attributed to that part of the land that was acquired post-19 September 1985, or acquired on the passing of their spouse in 20XX as a surviving joint tenant, with all other basic conditions contained in section152-10, Subdivision 152-C and Subdivision 152-D of the ITAA 1997 being satisfied, had a CGT event occurred to the asset immediately before their death.

The untimely death of the taxpayer left the Executors of the Estate to manage significant WorkSafe and coronial investigations, conflict over management of the business, complexity with the administration of the Estate, COVID-19 related delays and the eventual settlement of disputes with the execution of a Deed of Family Arrangement in 20XX.

The process has been arduous, with many factors outside the control of the landowners delaying the finalisation of the Estate's administration and preventing the Estate from executing a timely disposal of its asset by way of sale. The period of disposal will be outside of the permissible two year period from the death of the taxpayer for the landowners to avail themselves of the small business CGT concessions that you assert the taxpayer would have been entitled to and are seeking an extension of this time in relation to respective CGT events.

Relevant legislative provisions

Income Tax Assessment Act 1997 section152-10

Income Tax Assessment Act 1997 section 152-80

Income Tax Assessment Act 1997 subsection 152-80(1)

Income Tax Assessment Act 1997 paragraph 152-80(1)(d)

Income Tax Assessment Act 1997 subsection 152-80(3)

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 Subdivision 152-C

Income Tax Assessment Act 1997 Subdivision 152-D

Reasons for decision

Question

Summary

The Commissioner will exercise his discretion under subsection 152-80(3) of the ITAA 1997 and extend the two year time period to 30 June 20XX so that you can apply the CGT small business concessions in relation to the disposal of the CGT assets.

Detailed reasoning

Section 152-80 of the ITAA 1997 allows either the legal personal representative (LPR) or beneficiary of the estate, subject to certain conditions, to access the small business CGT concessions to the extent that the deceased would have been able to access them just before their death. Specifically, the following conditions must be satisfied:

• a CGT asset forms part of the estate of a deceased individual
• the asset devolves to the trustee of the trust established by the will of the deceased
• the deceased would have been entitled to reduce or disregard a capital gain under Division 152 of the ITAA 1997 if a CGT event had happened in relation to the CGT asset immediately before their death; and
• a CGT event happens in relation to the CGT asset within 2 years of the deceased's death (subsection 152-80(1)).

The Commissioner may extend the 2 year time limit (subsection 152-80(3) of the ITAA 1997).

In determining whether the 2 year time limit will be extended the Commissioner considers the following factors:

• evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension)
• prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension)
• unsettling of people, other than the Commissioner, or of established practices
• fairness to people in like positions and the wider public interest
• whether any mischief is involved, and
• consequences of the decision.

Having regard to these factors:

• You have provided evidence explaining the reasons of why an extension of the 2 year time limit is required. The delays in obtaining probate and the complexities involved in administering the Estate were outside of your control.
• Extending the time period will not prejudice the Commissioner; nor will it involve the unsettling of people, other than the Commissioner or of established practices. The ability to apply for an extension of time is available to all people with similar circumstances and the decision to allow extra time is not unfair to people in like positions or detrimental to the wider public interest.
• There is no evidence of any mischief and allowing the extension will enable you to apply the small business CGT concessions to reduce or disregard the capital gain made from the sale of the CGT assets subject to this private ruling application in the same way that you assert the taxpayer would have been able to do if the CGT assets had been sold immediately before their death.

In the circumstances, the period of the extension you have requested is considered fair and reasonable and the Commissioner will exercise the discretion under subsection 152-80(3) of the ITAA 1997 to extend the time limit in paragraph 152-80(1)(d) to 30 June 2022.

Additional information

The Commissioner has not considered your eligibility for the small business CGT concessions. You should ensure that you satisfy the basic conditions and the extra conditions where the CGT asset is a share in a company. Further information on 'small business CGT concessions' can be found on our website by searching QC 22655.