Edited version of private advice

Authorisation Number: 1052189377322

Date of advice: 07 November 2023

Ruling

Subject: CGT - active asset

Question

Will the Commissioner exercise his discretion under subsection 152-35(2)(b)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997) a period longer than 12 months after the cessation of a business within which the taxpayer can dispose of an asset and still satisfy the active asset test?

Answer

Yes. Considered the relevant facts, the Commissioner will exercise his discretion under subsection 152-35(2)(b)(ii) of ITAA 1997 and allow a period longer than 12 months between the cessation of the business and the disposal of the land to satisfy the active asset test on disposal.

It was considered that the taxpayer had the intention to take over the business however, their health prevented them from continuing the business which was outside their control. Therefore, it is fair and equitable to allow the extension.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a deceased estate.

The deceased had a spouse and the two were in a farming partnership from 19XX.

The deceased worked full-time while also participating in the daily operations on the farm and making key decisions in how the farm operated.

The land on which the farm operated was inherited by the spouse prior to XX September 19XX. It is referred to as lot A and lot B.

The spouse passed away and the land was transferred to the deceased in accordance with their will.

The deceased chooses to continue the enterprise via a contracting/share farming agreement.

After six months of pursing the activity, the seasonal conditions proved to be very challenging, The deceased family become aware the deceased were not coping with the enterprise.

The decision was made to lease the property while keeping aside a house, some sheds and 50 acres of land. This was for the purpose of providing the deceased with a residence while they maintained a hobby farm.

The business activity ended on the 1 January 20XX upon which the land was no longer an active asset. The land was than leased for two years with an option for an additional year so that the deceased could return to operating the business.

The deceased was diagnosed with dementia and had to move so their family could care for them. To cover the expenses of nursing home placement the family agreed to the sale of the land.

The land though being a business asset had been in the family for multiple generation and there were some sensitivities in relation to disposing of the land to a third party.

The properties Lot A and Lot B were then sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-35(2)(b)(ii)