Edited version of private advice

Authorisation Number: 1052083163371

Date of advice: 3 February 2023

Ruling

Subject: Commissioner's discretion - 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 20XE?

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

Year of income ended 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

This description of facts is based on the following documents. The documents form part of and are to be read with this description. The relevant documents are:

(a)  The PBR Application dated 22 December 20XE; and

(b)  Submission attached with application.

1.    Individual A as legal personal representative ("Taxpayer") of the Deceased taxpayer ("Individual B") is a practising solicitor and the executor of the Estate of the B ("Estate").

2.    Individual B died on X XXX 20XA

3.    Individual B and his wife, Individual C ("Individual C"), purchased a property ("the Property") as joint tenants on

4.    post CGT. From the date of the acquisition, Individual B and his wife operated a cattle farming business ("Business") in partnership on the Property.

5.    Over fifteen years ago, Individual C died and her interests in the Property passed to Individual B. After Individual Cs passing, the deceased continued to operate the Business until he died in 20XA. On this date the Property devolved to the Taxpayer as Individual B's legal personal representative.

6.    Individual B had no children or other dependents at the time of his death. His living family included four siblings (out of a total of six). His siblings, Individuals D and E, predeceased Individual B.

7.    The value of the Estate at the time of Individual B's death was $X,XXX,XXX. Individual B's will ("the Will") provided for a small portion of the Estate to be paid to his siblings who, with the exception of Individual F

8.    ("Individual F"), each received $XXX,XXX. Individual F received an extra payment pursuant to her Part IV claim ("F Claim").

9.    The Will provided for the balance of the Estate to be distributed to various charities at the discretion of the Taxpayer. There were no other individuals involved in the Business. Following Individual B's death, the Taxpayer proceeded to wind down the Business and dispose of the business assets. The last of the livestock was sold in April 20XB.

10.  The Property was sold on 13 December 20XD by the Taxpayer and settlement occurred on 12 March 20XE.

Difficulties in Administering the Estate

11.  The Taxpayer encountered a number of difficulties in administering the Estate, resulting in delays in the marketing and sale of the Property.

12.  The Taxpayer was elderly at the time of Individual B's death and was (and continues to be) a practicing solicitor managing a sole practice. Given this, the Taxpayer was limited by both resource and time constraints.

13.  The Taxpayer personally attended to administering the Estate, including dealing with both his responsibilities as executor as well as the legal claims against the Estate (please refer below for further detail on the legal claims).

Legal Challenges

14.  Individual F filed a Part IV claim against the Estate with the Supreme Court of Victoria on 28 June 20XB on the basis that she was not adequately provided for in Individual B's Will. The Taxpayer defended the claim. This claim was finally settled following mediation on 30 April 20XC.

15.  Individual B's brother, Individual G ("Individual G"), filed a further claim against the Estate on 3 July 20XC with the Supreme Court of Victoria ("G Claim"). The claim was dismissed by the court prior to hearing on 31 January 20XD.

Sale of Property

16.  Individual F occupied the house located on the Property whilst her claim was being settled. Individual F vacated the Property and returned the keys to the real estate agent engaged to sell the Property on 30 May 20XC.

17.  In view of the F and G Claims, and given the Taxpayer's resource and time constraints, the Taxpayer was unable to commence the sale of the Property until resolution of the legal claims. The Taxpayer understood that given the Individual F and Individual G Claims were in relation to further provisions from the Estate, he was unable to commence either the clean-up or sale of the Property as he was obliged to leave the assets of the Estate in the same condition as at the date of death. The Taxpayer also believed that he would be able to deal with the legal claims more effectively by attending to the legal claims before attending to the sale of the Property (given any sale of the Property would affect the assets of the Estate which were subject to the legal claims).

18.  At the conclusion of the legal claims, the Taxpayer commenced dealing with the marketing and sale of the Property. The Taxpayer engaged a Real Estate Agency to sell the Property in July 20XD, after interviewing two other real estate agents.

19.  The Real Estate initially advised the Taxpayer that there should be a sale of the farming equipment on site prior to the auction of the Property. The Taxpayer was then later advised that the farming equipment had no realisable value to the Estate.

20.  The Property generally was in very poor condition. Farming equipment, small tools and the like were stored on the Property in a number of sheds and shipping containers. Following the receipt of advice that these items were of no realisable value to the Estate, a process of rubbish disposal and general clean-up was undertaken.

21.  The Property was listed for sale with an auction date set for December XD The auction failed to solicit any offers, with a negotiated sale finally concluded later in December 20XD.

Small Business CGT Concessions

22.  The Taxpayer made a capital gain from the sale of the Property.

23.  Individual B carried on the Business until his death.

24.  You have asserted that Individual B would have been entitled to reduce or disregard a capital gain under Division 152 of the ITAA 1997 if a CGT event occurred in relation to the Property immediately before his death.

25.  Your state the following reasons for the discretion to be granted:

a) The first three conditions set out in section 152-80(1) of the ITAA 1997 are satisfied as follows:

•         The Property forms part of the Estate;

•         The Property devolved to the Taxpayer as B's legal personal representative;

•         Individual B would have been entitled to reduce or disregard a capital gain under Division 152 if a CGT event had happened in relation to the Property immediately before his Property; and

b) Whilst the CGT event in relation to the Property did not occur within 2 years of Individual B's death, the sale of the Property was delayed due to the following extenuating circumstances:

•         The Taxpayer was elderly and had to manage administering the Estate, including:

o   Attending to his responsibilities as executor of the Estate;

o   Attending to the legal claims by Individual B's siblings against the Estate; and

o   Managing the rubbish disposal, removal of sheds and general clean-up of the Property.

•         The Taxpayer managed the above in addition to his work commitments as a sole legal practitioner, facing both time and resource constraints in administering the Estate and selling the Property.

•         The Property was listed for sale as soon as practically possible after the relevant issues were resolved. Further, the sale was completed shortly after the Property was listed for sale.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152

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

Issue 1

Question 1

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 asset, being the Property.

Detailed reasoning

1.    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)).

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

3.    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.

4.    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 caused by the legal claims, the rubbish clean-up 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 asset subject to this private ruling application in the same way that you assert the taxpayer would have been able to do if the CGT asset had been sold immediately before their death.

5.    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 20XX.

Additional information

6.    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 searchingQC 22655.