Edited version of private advice

Authorisation Number: 1052032298032

Date of advice: 16 December 2022

Ruling

Subject: CGT - small business concessions

Question

Will the Commissioner exercise the discretion in subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the 2 year time limit to apply the small business capital gains tax concessions to the disposal of the Property?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are the sole shareholder and director of a Company A.

You are over the age of 55.

The Company is a small business entity.

The Company operated a business from the Property for over 30 years.

Prior to the purchase date, the Company leased the Property from its previous owner.

In the relevant income year, new owners (the Owners) related to you acquired the Property.

In the year the Owners acquired the Property you entered a verbal agreement with them under which:

1.    the Owners would at all times make the Property available to the Company for the sole benefit of the Company on a rent-free basis

2.    you were to repay the Owners all of the purchase monies, by way of a monthly payment of $2,505 to be paid on the first day of every month, and

3.    on the final payment, you were entitled to compel the Owners to transfer legal title to become the registered proprietor of the Property.

You paid all outgoings related to the Property including council rates, land taxes and maintenance expenses.

One of the Owners passed away and all of their rights, title and interest in the Property passed to the surviving owner (surviving owner).

The surviving owner passed away.

The surviving owners Will provided that:

•         you are named as Executor of the Deceased's Will and Trustee of the Estate.

•         the Title and interest in the Property were to form part of your share of the Estate and,

•         you were to receive a share of the deceased's estate with a Clause of the Will providing that the right title and interest in the Property would pass to you, even if the Property was worth more than the allocated share of the Estate.

The Property was transferred to you.

In the relevant income year, you entered a contract to dispose the Property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-80

Reasons for decision

Section 152-80 of the ITAA 1997 applies when:

(a) a CGT asset:

(i) forms part of the estate of a deceased individual, or

(ii) was owned by joint tenants and one of them dies, and

(b) any of the following applies:

(i) the asset devolves to the individual's legal personal representative

(ii) the asset passes to a beneficiary of the individual

(iii) an interest in the asset is acquired by the surviving joint tenant or tenants, or

(iv) the asset devolves to a trustee of a trust established by the will of the individual, and

(c) the deceased individual referred to in paragraph (a) would have been entitled to reduce or disregard a capital gain under this Division if a CGT event had happened in relation to the CGT asset immediately before his or her death, and

(d) a CGT event happens in relation to the CGT asset within 2 years of the individual's death (subsection 152-80(1) of the ITAA 1997).

The Commissioner may extend the time limit in paragraph 152-80 (1)(d) of the ITAA 1997 (subsection 152-80(3) of the ITAA 1997).

In determining whether the discretion to extend the time limit would be exercised the Commissioner has considered the following factors:

•         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

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

•         whether there is any mischief involved, and

•         the consequences of the decision.

In your case, while the Commissioner appreciates that you operated your business from the Property for a considerable period, you have not provided a reasonable explanation for the delay in the disposal of the Property. You chose to continue to operate the business from the Property. The delay was not due to factors outside your control such as disputes or disagreements over the assets of the deceased or sales contracts falling through. An extension would not be granted to others in similar circumstances.

Accordingly, the Commissioner will not exercise the discretion in subsection 152-80(3) of the ITAA 1997 to extend the 2 year time limit.