Edited version of private advice

Authorisation Number: 1052168527000

Date of advice: 21 September 2023

Ruling

Subject: CGT - deceased estates

Question 1

Will the Commissioner exercise their discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit allowed of the sale of the Property?

Answer

Yes, having considered the relevant circumstances, particularly in relation to the delays caused by disputes over the estate and the flooding in the area, the Commissioner will exercise the discretion under paragraph 124-75(3)(b) of the (ITAA 1997) to allow an extension of time.

Question 2

Is the Trustee for the Estate eligible to apply the CGT small business 15-year exemption under Subdivision 152-B of the ITAA 1997 in relation to the sale of the Property?

Answer

Yes.Immediately prior to their death, the deceased would have satisfied all of the relevant conditions for the 15-year exemption in relation to the Property. The basic conditions would have been satisfied as the Property was used in the business of a connected entity for their entire period of ownership and the deceased satisfied the maximum net asset value test. Further, the deceased was over 55 at the time of death and had owned the property for more than 15 years.Accordingly, the administrator for the Estate is eligible to apply the CGT small business 15-year exemption under Subdivision 152-B of the ITAA 1997 in relation to the sale of the Property

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The deceased died in the 20XX-XX financial year.

A Grant of Letters of Administration with the Will was issued to the administrator approximately 5 months after the deceased death.

Prior to the administrator's appointment, the named executor and the alternative executor renounced their right and tittle to the probate and execution of the Will. As such, until the administrator was appointed in accordance with the Grant, there was no person authorised to act on behalf of the Estate.

At date of their death the Deceased was the sole director and shareholder of Company A

The deceased was the sole shareholder of the company for entire the period they owned the Property.

Throughout the ownership period of the Property, the deceased's shareholding provided them with the right to receive more than 40% of the distributions of income and capital from Company A.

Following the deceased death and the administrator's appointment, the administrator appointed themselves as the director and secretary of Company A. The deceased remained the sole shareholder of Company A.

Company A operated a primary production business at the Property until the deceased death. Company A owned all the primary production plant, equipment, and stock.

Company A used the Property for its primary production business throughout the deceased entire ownership period.

The deceased purchased the Property more than 15 years before their death. The Property was also the deceased main residence until the time of their death.

The Property was never used for the purpose of deriving rent. Further, Company A never paid rent, annuity, royalties or any like payments to the deceased for the use of the Property.

During the deceased lifetime, Company A received the income from the farming business and paid the expenses associated with the business and the Property.

Following the deceased death and their appointment, the administrator ceased the primary production business and took steps to begin selling the Property, plant, equipment and stock.

The deceased's defacto spouse notified the administer of their intention to make a claim for further provision from the Estate.

The deceased stepchildren indicated their intention to make a claim for further provisions from the Estate.

Due to litigations in relation to the claims, the administrator was required to obtain valuations of the Property and the plant and equipment before the Property was able to be listed for sale.

The administrator also required agreement from the deceased's defacto spouse and stepchildren given the nature of their claim. The family provision claim was finalised by way of final court orders of the Court after a delay of more than one year.

The Property was first listed for sale and continuously marketed for a period of approximately 18 months before it was sold.

The Property sale was delayed due to significant flooding in the area for an extended period and a limited available market for this type of Property.

The Property sale settled shortly after the date of the sale contract. The plant and equipment owned by Company A was sold at the same time.

At the time of deceased death, they satisfied the maximum net asset value test under section 152-15 of the ITAA 1997.

At the time of deceased death, the company was a CGT small business entity under subsection 152-10(1AA).

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 152-10(1)

Income Tax Assessment Act 1997 subsection 152-10(1AA)

Income Tax Assessment Act 1997 section 152-15

Income Tax Assessment Act 1997 section 152-80

Income Tax Assessment Act 1997 section 152-110

Income Tax Assessment Act 1997 Division 152