Edited version of private advice

Authorisation Number: 1052254720053

Date of advice: 3 June 2024

Ruling

Subject: Commissioner discretion - deceased estates

Question

Will the Commissioner exercise the discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the 2-year time period to DD MM 20XX in relation to the 50% interest in the property you inherited?

Answer

Yes.

This ruling applies for the following period:

DD MM 20XX

The scheme commenced on:

DD MM 20XX

Relevant facts and circumstances

Your late parent (the deceased) owned farm property which was acquired on DD MM 19XX.

The property includes a residence as well as farm improvements on it. The deceased carried on a farming business on the property during the entire time it was owned.

The deceased passed away on DD MM 20XX. You and your sibling inherited the property as tenants in common in equal shares, pursuant to the deceased's Will.

You are a farmer and planned to acquire your siblings 50% interest in the property. The property had been in your family for many years. You did not want to sell the property and intended to carry on your farming business on the land. Your sibling was not a farmer and was agreeable to transferring his share to you.

You became engaged in lengthy divorce proceedings just prior to the deceased's death which went on for a number of years. This caused you to experience financial hardship. You used your interest in the property as security to obtain a loan to finance your divorce proceedings.

On DD MM 20XX you entered into a contract to purchase your siblings 50% interest in the property for market value as determined by an independent valuation.

You were not able to manage the debt levels incurred relating to your divorce proceedings. You decided that your only option was to sell the property in its entirety.

You sold the property to an unrelated third party on DD MM 20XX. The sale settled approximately 3 months later.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-80

Income Tax Assessment Act 1997 paragraph 152-80(1)(d)

Income Tax Assessment Act 1997 subsection 152-80(3)

Reasons for decision

The rules for dealing with a deceased individual's property and the small business concessions are set out in section 152-80 of the ITAA 1997. Where a CGT event happens to an asset or interest within 2 years of individual's death, the capital gain can be reduced or disregarded in the same way that the deceased individual would have been entitled to if the CGT event had happened immediately before their death.

Under paragraph 152-80(1)(d) of the ITAA 1997, a CGT event must happen in relation to the CGT asset within 2 years of the individual's death. The Commissioner has the discretion to extend the time limit under subsection 152-80(3) of the ITAA 1997.

The Commissioner has considered the following factors in determining whether to exercise the discretion to extend the time limit set out in paragraph 152-80(1)(d) of the ITAA 1997:

•         whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to grant the extension;

•         whether it would be prejudicial to the Commissioner to grant further time. The absence of prejudice is not enough to justify the granting of the extension;

•         whether the decision will unsettle people other than the Commissioner or unsettle established practices;

•         whether it is fair to people in similar positions and the wider public interest;

•         whether there is any mischief involved; and

•         the consequences of granting the extension.

Application to your circumstance

In this case, the deceased individual passed away on DD MM 20XX. The time limit expired on DD MM 20XX, being 2 years after the death of the deceased. As the relevant asset was not sold until DD MM 20XX, you will only be able to reduce or disregard the capital gain if the Commissioner grants an extension of the time limit.

The prolonged delay in disposing of the property was mainly due to lengthy divorce proceedings which prevented you from dealing with the property sooner. This caused you financial hardship which meant that you had to change your plans with the property. Your original plan was to carry on your own business on the land after buying out your siblings share. Unfortunately, after you acquired your siblings interest, it became apparent that you would not be able to handle the financial burden due to the costs involved with the divorce proceedings. You sold the property only a short time outside of the expiry of the 2-year period. The circumstances of the case and explanation for the delay support the case for an extension of the time limit.

The request for an extension to the time limit was received on DD MM 20XX, approximately 18 months after the 2-year period ended. As the request has been received outside the 2-year period, there may be some prejudice on the Commissioner. The extension requested to the time limit is negligible as it is only for a short amount of time outside of the 2-year period.

There is an acceptable explanation for the extension requested and it is fair and equitable in the circumstances to grant the extension. The decision to grant the extension is fair to those in similar positions and the wider public interest. There does not appear to be any mischief involved and no ill consequences resulting from the extension being granted.

Having considered these factors and your circumstances, the Commissioner will exercise the discretion in subsection 152-80(3) of the ITAA 1997 to extend the time limit to DD MM 20XX to reduce or disregard capital gains relating to the 50% interest in the property you inherited from the deceased.

We have limited our ruling to the question raised in your application being whether an extension of the time limit will be granted. You have advised that the deceased would have been eligible to apply the small business concessions if they had disposed of the property immediately before their death. The private ruling on whether an extension of the time limit will be granted was issued on the basis that the Commissioner did not consider the deceased's eligibility for the small business concessions.