Edited version of private advice

Authorisation Number: 1052278956360

Date of advice: 22 July 2024

Ruling

Subject: Commissioner discretion - deceased estates

Question

Will the Commissioner exercise discretion under section 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit beyond 2 years to DD MM 20YY in relation to the disposal of a property?

Answer

Yes.

This ruling applies for the following period:

Year Ended 30 June 20XX

The scheme commenced on:

10 August 20XX

Relevant facts and circumstances

The deceased inherited a 100% interest in the property through survivorship in 20XX.

The property was previously used by the deceased's spouse up until their death in 20XX as part of a primary production business.

The property continued to be used as part of a primary production business carried on by the deceased's adult children (the siblings) through a partnership made up of the siblings.

The deceased allowed the use of the land with no rent charged, and no formal arrangements negotiated.

This arrangement was informal, based on their close family relationship.

The deceased continued to reside on the property, assisting with checking on the cattle and property, alerting the siblings of any matters requiring attention. The deceased was not remunerated for this.

The deceased died on DD MM 20XX.

While preparing the property for sale after the death of the deceased, a tornado hit the property on DD MM 20XX, causing damage to the property and infrastructure.

The damage sustained to the property required a major clean-up effort which was delayed by fire restrictions caused by a dry winter.

Further delays were caused by the ill health of one of the siblings which rendered them unable to assist in the clean-up effort for a number of months.

A private ruling was issued on DD MM 20XX determining that the siblings and the deceased were affiliates pursuant to section 328-130 of the ITAA 1997. It was also determined that the deceased would have satisfied the active asset test under section 152-35 of the ITAA 1997 during their ownership of the property.

The property was listed on DD MM 20XX.

There are two potential buyers for the property, they both require the sale of their own properties in order to purchase this property, additionally these efforts have been hampered by rising interest rates and difficulties obtaining finance.

Relevant legislative provisions

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

Reasons for decision

Section 152-80 of the 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 or passes to a beneficiary, and

•         the deceased would have been able to apply the small business concessions themselves immediately prior to their death, and

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

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

•         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 provide such an extension,

•         whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension,

•         whether there is any unsettling of people, or of established practices,

•         fairness to people in like positions and the wider public interest,

•         whether there is any mischief involved, and

•         the consequences of the decision.

Application to your circumstances

In this case, the property was transferred to the beneficiary and the deceased would have met the basic conditions to apply the small business CGT concessions. The business operated from the property for a total of XX years, thus satisfying the active asset test.

As there were several factors beyond your control which accounts for the delay in the sale of the property, these being a tornado damaging the property resulting in a clean-up effort that lasted many months, the ill health of one of the partners which further delayed clean-up efforts and the difficulty experienced by potential buyers in obtaining finance to purchase the property. There is no bias to the Commissioner in allowing the extension, there is no unsettling of people or unfairness to people in like positions or the wider public. There does not appear to be any mischief involved, and it is fair and equitable to allow an extension of time. Based on these facts, it is appropriate for the Commissioner to grant an extension of time to DD MM 20XX.