Edited version of private advice

Authorisation Number: 1052047672960

Date of advice: 20 October 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 XX December 20XX?

Answer

Yes.

This ruling applies for the following period:

Year of income ended 30 June 20XX

The scheme commences on:

XX August 20XX

Relevant facts and circumstances

The CGT asset referred to in this ruling is the interest in the land that was acquired by the taxpayer in 19XX.

The property was operated as a farm by the taxpayer and their spouse from 19XX to 20XX. The taxpayer's spouse passed away in 20XX and their share of the farm transferred to the taxpayer under their Will.

From that time, the farm was rented to relatives who continued the farming operation. Rental income was declared in the taxpayer's personal income tax return and any relevant expenses were claimed for taxation purposes.

The taxpayer passed away in 20XX and probate was granted in 20XX.

The CGT asset has devolved to the legal personal representative (LPR) being the Executors of the Estate.

The taxpayer operated the property as a farm for over 15 years with their late spouse from 19XX to 20XX. The taxpayer's original 50% share was an active asset for the purposes of the small business CGT concessions as it was held as an active asset for over 7 and a half years during their ownership period.

It is the capital gain on the taxpayer's original 50% share that would be disregarded pursuant to paragraph 152-80(1)(c) of the ITAA 1997 with all other basic conditions contained in section 152-10 and Subdivision 152-B being satisfied, had a CGT event occurred to the asset immediately before their death.

The small business CGT concessions are not being sought to be claimed in respect of the 50% share of the property that the taxpayer received on the passing on their late spouse in 20XX, that was used to derive rental income from that date.

The death of the taxpayer left the Executors of the Estate to manage a coronial investigation, an insurance claim, a family dispute in relation to the sale of the property, complexity with obtaining access to the property, bushfire and COVID-19 related delays.

The process has been difficult, with many factors outside of 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 2 year period from the death of the taxpayer for the landowners to avail themselves of the small business CGT concessions that the taxpayer would have been entitled to and you are seeking an extension of this time in relation to respective CGT events.

Relevant legislative provisions

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)

Reasons for decision

Summary

The Commissioner will exercise his discretion under subsection 152-80(3) of the ITAA 1997 and extend the 2 year time period to XX December 20XX so that you can apply the CGT small business concessions in relation to the disposal of the CGT asset.

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 her 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 her 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 XX December 20XX.

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.