Edited version of private advice

Authorisation Number: 1052174121234

Date of advice: 25 October 2023

Ruling

Subject: CGT - deceased estates

Question

Will the Commissioner exercise the discretion in subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the time limit to the year ended 30 June 2022 to enable you to apply the small business 15-year exemption to disregard the capital gain you made on the disposal of the interest in the property you inherited from your parents that they acquired before September 1985?

Answer

No.

This ruling applies for the following period

1 July 2021 to 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

Your parent acquired the property before 20 September 1985.

Your parent (the deceased) passed away in the financial year ending 30 June 2005.

The deceased owned the property and used the property for a farming business since 1982.

The deceased left a will.

Under the deceased's will, a life tenancy was granted to the deceased's spouse.

The property was also willed to you and Relative A.

While the deceased spouse lived on the property, Relative A continued the farming business activities on the property on behalf of the deceased estate. You were not involved with the business activities.

The deceased's spouse passed away in 2020.

The farmland was sold by you and Relative A in 2021

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 152 section 152-10

Reasons for decision

Section 152-80 of the Income Tax Assessment Act 1997 (ITAA 1997) allows either the legal personal representative of an estate or the beneficiary to apply the small business capital gains tax (CGT) concessions in respect of the sale of the deceased's asset in certain circumstances.

Specifically, the following conditions must be met:

•                     The asset devolves to the legal personal representative, passes to a beneficiary, or is acquired by a surviving joint tenant

•                     The deceased would have been able to apply the small business concessions themselves if they had disposed of the asset immediately prior to their death, and

•                     A CGT event happens within 2 years of the deceased's death unless the Commissioner extends the period in accordance with subsection 152-80(3) of the ITAA 1997.

One of the basic conditions to apply the small business concessions is that the CGT event would have (apart from the application of the small business concessions contained in Division 152 of the ITAA 1997) resulted in a capital gain.

Capital gains made on the disposal of assets that were acquired prior to 20 September 1985 are disregarded under subsection 104-10(5) of the ITAA 1997.

In this case the deceased would not have met the basic conditions to apply the CGT small business concessions had their interest in the property been disposed of immediately prior to their death. As the deceased acquired the property prior to 20 September 1985, if they had disposed of the property just prior to their death, any capital gain would have been disregarded under subsection 104-10(5) of the ITAA 1997. Accordingly, the CGT event would not have resulted in the gain and the small business concessions could not have been applied by the deceased.

Therefore, as all of the requirements of section 152-80 of the ITAA 1997 have not been met, the Commissioner will not exercise the discretion under subsection 152-80(3) of the ITAA 1997 to extend the time period.