Edited version of private advice

Authorisation Number: 1052242849056

Date of advice: 18 April 2024

Ruling

Subject: CGT - small business concessions

Question 1

Will the Trustee for The Estate be entitled, under section 152-80 of the ITAA 1997, to apply the 15-year exemption (in Subdivision 152-B) to disregard any capital gain arising from the disposal of the Pre-CGT holding of Lot 1 and Lot 2?

Answer

No.

Question 2

Will the Trustee for The Estate be entitled, under section 152-80 of the ITAA 1997, to apply the 15-year exemption (in Subdivision 152-B) to disregard any capital gain arising from the disposal of the post-CGT holdings of Lot 1 and Lot 2?

Answer

No.

Section 152-80 allows a legal personal representative of a deceased individual to apply the small business CGT concessions in respect of the sale of the deceased's CGT assets where the following are satisfied:

•         the CGT asset forms part of the estate of the deceased individual (subparagraph 152-80(1)(a)(I));

•         the CGT asset devolves to the legal personal representative of the deceased individual (subparagraph 152-80(1)(b)(i));

•         the deceased would have been entitled to reduce or disregard a capital gain under Division 152 if a CGT event had happened in relation to the CGT asset immediately before his or her death (paragraph 152-80(1)(c)); and

•         a CGT event happens in relation to the CGT asset within two years of the individual's death (paragraph 152-80(1)(d)).

Paragraph 152-80(1)(d) requires that the CGT event happens in relation to the CGT within two years of the individual's death.

CGT event A1 happened when the executor entered into the contract to dispose of Lot 1 and Lot 2.

This was later than 2 years after the deceased death.

Accordingly, on face value, this condition is not satisfied for either the pre or post CGT property interests.

Question 3

Will the Commissioner exercise the discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit to 30 June 2023 allow the small business capital gains tax concessions to be applied to the post-CGT holdings of Lot 1 and 2?

Answer

Yes.

Subsection 152-80(3) provides that the Commissioner may extend the time limit in paragraph 152-80(1)(d).

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.

Having regard to these factors:

•         You have provided evidence explaining the reasons of why an extension of the 2-year time limit is required. Neither Lots 1 nor 2 could be sold until the legal proceeding were finalised. The Property was marketed for sale within a reasonable timeframe.

•         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 Post CGT Property Interests of Lots 1 and 2 in the same way that you assert the deceased would have been able to do if the post CGT assets had been sold immediately before her death.

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) to extend the time limit in paragraph 152-80(1)(d) to 30 June 2023. Consequently, the condition in paragraph 152-80(1)(d) is met for the Post CGT Property Interests.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

1.    The deceased Person A died on DD/MM/XXXX (Date of death).

2.    Person A was a resident for Australian taxation purposes and was Y years old.

3.    Person A married to a Partner who passed away many years prior.

4.    Person A's Will named Person B as the executer and trustee of the Will.

5.    The Will of Person A allowed the trustee to sell the assets including The property to the beneficiaries.

6.    The Property include Lots 1 and 2.

7.    Lot 1 and Lot 2 were acquired by the Person A and Partner as tenants in common pre-20 September 1985 in the following shares - 75% Partner and 25% Person A.

8.    Lot 1 and 2 were both used wholly by the Family Trust in its primary production business.

9.    Person A was the sole beneficiary of the Partners estate on his death and acquired the 75% interest in Lot 1 and 2 more than 15 years prior to the date of death of Person A and post 20 September 1985.

Person A's Estate and the Deed of Agreement

10.  Due to the legal proceedings, the executor was not able to sell any assets of the estate.

11.  On DD MM YYYY, the legal proceeding was resolved.

The Sale of the Property

12.  On a date over 2 years from the date of the death of person A, Lot 1 and 2 were sold.

The use of the Property

13.  At the time of Person A's death, the land was used in carrying on a primary production business by the Family Trust. The primary production business was operated for more than 15 years. The property was an active asset for at least 7½ years.

Family Trust

14.  BCo is the trustee company of the Family Trust, and it does not conduct any business operations in its own right. There are no other trust or company associated with the deceased or the family trust.

15.  The Beneficiary of the Family Trust was Person A for the year ended 30 June 2021 and 2022.

16.  For the relevant income years, the aggregate turnover of the Family Trust was less than $X million.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-10

Income Tax Assessment Act 1997 section 152-35

Income Tax Assessment Act 1997 section 152-40

Income Tax Assessment Act 1997 section 152-80

Income Tax Assessment Act 1997 section 152-105

Income Tax Assessment Act 1997 section 152-49

Income Tax Assessment Act 1997 Subdivision 152-B

Income Tax Assessment Act 1997 Subdivision 328-C