Edited version of private advice

Authorisation Number: 1052078047253

Date of advice: 17 January 2023

Ruling

Subject: CGT - small business concessions - deceased estate

Question

Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the 2-year time period to dispose of the post CGT interest in the Property held by the deceased?

Answer

Yes.

The Commissioner will exercise his discretion to extend the 2-year time period under subsection 152-80(3) of the ITAA 1997 in relation to the interest in the Property that the Deceased acquired upon the death of their spouse.

The extension of time does not apply to the interest the deceased acquired prior to 20 September 1985. This interest was a pre-CGT asset, and if the CGT event had happened in relation to the property immediately before the death of the deceased, the capital gain would have been disregarded under subsection 104-10(5) of the ITAA 1997. The basic eligibility conditions for the small business concessions under section 152-10 of the ITAA 1997 state under paragraph (b) that the CGT event would (apart from this Division) have resulted in the gain. Because a gain did not occur apart from this Division, the deceased would not have been entitled to reduce or disregard a capital gain under Division 152 if the CGT event had happened in relation to the Property immediately before their death.

The private ruling has been limited to the Commissioner's exercise of the discretion under subsection 152-80(3) of the ITAA 1997 to allow an extension of the 2-year period. The Commissioner has not considered whether the Deceased would have met the conditions required to apply the small business CGT concessions to the relevant interest in the Property. Further information on 'small business CGT concessions' can be found on our website by searching QC 22655.

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

The deceased died several years ago.

The deceased owned a farming property (the Property).

The deceased acquired the property jointly with their spouse prior to 20 September 1985.

The deceased acquired their spouse's share in the Property upon the spouse's death, which occurred around a decade before the deceased's.

At the time of the deceased's death, they were operating a farming business on the Property in partnership with their child, and Company Y Pty Ltd (Company Y).

Probate was applied for approximately one year after the deceased's death and granted X months later.

The administration of the Estate was complicated by the following factors:

(a)  The assets listed in the will were not all owned by the deceased personally. Therefore, it took some time for the executors (in conjunction with solicitors) to identify the ownership interests and identify what could be achieved in terms of administering the terms of the will.

(b)  The will did not specify who was to receive the shares the deceased held in Company Y. However, it was the deceased's wish in the will that the entire partnership should go to their child. It took time for the Executors to obtain advice on this issue and communicate this to the beneficiaries of the Estate. The Executors sought the beneficiaries' approval to transfer the Company Y shares to the deceased's child. Around a month later, the beneficiaries consented to this share transfer.

(c)   From MM YYYY, the COVID-19 pandemic caused delays in terms of obtaining advice and seeking confirmation from beneficiaries.

(d)  The assets bequeathed under the will and the various trust interests held by the deceased made it difficult for the Executors to administer the Estate, and therefore the Executors sought and relied on advice from solicitors at various stages of the administration process. This advice took time to obtain.

(e)  The Executors were required to navigate the sensitive family dynamics amongst the deceased's children (the Executors were also X of the deceased's children). They had to navigate these family dynamics in circumstances where their parent had passed away unexpectedly.

Around X years and X months after the deceased's death, the Executors instructed solicitors to commence the process of selling the Property.

The Property was sold at auction, with settlement occurring X years and X months after the deceased's death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

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

Income Tax Assessment Act 1997 subsection 104-10(5)