Edited version of private advice

Authorisation Number: 1052287506445

Date of advice: 8 August 2024

Ruling

Subject: Commissioner's discretion - deceased estates

Question 1

Will the Commissioner exercise their discretion in subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two-year time limit in paragraph 152-80(1)(d) of the ITAA 1997 to 30 June 2024within which a CGT event must occur for the Legal Personal Representative for The Estate of Person A to dispose of the interest in the land acquired in 19XX?

Answer

Yes.

Question 2

Will the Commissioner exercise their discretion in subsection 152-80(3) ITAA 1997to extend the two-year time limit in paragraph 152-80(1)(d) of the ITAA 1997to 30 June 2024 within which a CGT event must occur for the Legal Personal Representative for The Estate of Person B to dispose of the interest in the land acquired by Person A in 20XX?

This ruling applies for the following period:

Year Ended 30 June 2024

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

The deceased was Person A.

Person A's spouse was Person B.

Person A passed away in March 20XX.

Person B passed away 3 months later.

The 2-year anniversary of Person A's passing was March 20XX.

The 2-year anniversary of Person B's passing was June 20XX.

Person A and Person B acquired interest in the land as tenants in common (Interest A) after September 1985.

Person A and Person B acquired their joint tenant interest (Interest B) of the land in July 20XX.

The land was used by the partnership to conduct primary production business (the business).

Person A and Person B had 50% each of the equity of the partnership.

The partnership commenced leasing the land to third parties during the 20XX income year. The business also ceased in the same year.

The partnership used the land in the business for at least 7½ years prior to Person A's passing.

Person B, as sole surviving joint tenant, was taken to have acquired Person A's interest in Interest B in March 20XX and held by Person A until their passing. It has formed part of Person B's Estate since.

Due to Person A and Person B passing away in close proximity to each other (within 3 months), transmission of joint tenant and tenants in common interests in the land was subject to registration (in the case of joint tenant interests) and administration via the Person A's and Person B's estates respectively (in the case of tenants in common interests).

A sale contract for the land was signed and executed in June 20XX.

There have been difficulties and delays in contract negotiations for the sale of the land to the purchaser. These negotiations commenced before Person A and later, Person B, passed away and have continued via the Legal Personal Representatives (LPR) for Person A and Person B's Estates until the contract signing in June 20XX.

The following facts have delayed and complicated the matter for the executor in regard to selling the land before Person A's 2 years had expired:

• There were numerous parcels.
• The parcels are held differently e.g., mixed tenancies.
• When parcels have deemed to have passed vary.
• There may be a difference to actual passing of titles and transmitting titles.
• The parcels have different acquisition dates.
• One of the parcels has joint tenancy ownership, where survivorship would have transmitted ownership the survivor upon death (still subject to registration).
• The parcel that was held as tenants in common is still subject to administration, and still have not been administered.
• Historic valuations have needed to be undertaken.

The land was disposed of in June 20XX it was prior the 2-year anniversary of Person B's passing but approximately 3 months after the 2-year anniversary of Person A's passing.

Relevant legislative provisions

Income Tax Assessment Act section 152-80

Reasons for decision

Question 1

Section 152-80 of the ITAA 1997 says that a CGT event happens to an asset or interest within 2 years of individual's death.

Subsection 152-80(1) of the ITAA 1997 states this section applies if:

(a) a CGT asset:

(i) forms part of the estate of a deceased individual; or

(ii) was owned by joint tenants and one of them dies; and

(b) any of the following applies:

(i) the asset devolves to the individual's legal personal representative;

(ii) the asset passes to a beneficiary of the individual;

(iii) an interest in the asset is acquired by the surviving joint tenant or tenants (as the case may be) as mentioned in section 128-50;

(iv) the asset devolves to a trustee of a trust established by the will of the individual; and

(c) the deceased individual referred to in subparagraph (a)(i) or (ii) would have been entitled to reduce or disregard a capital gain under this Division if a CGT event had happened in relation to the CGT asset immediately before his or her death; and

(d) a CGT event happens in relation to the CGT asset within 2 years of the individual's death.

Subsection 152-80(3) of the ITAA 1997 says that the Commissioner may extend the time limit in paragraph (1)(d).

In determining whether to allow an extended asset replacement period, 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, other than the Commissioner, or of established practices

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

•         whether there is mischief involved, and

•         the consequences of the decision.

In this case, Interest A from Person A formed part of their estate and devolved to the legal personal representative who then had to manage 50% of interest A. Person B then passed away within 3 months meaning the two estates being administrator simultaneously.

There were also difficulties and delays in contract negotiations for the sale of the land to the purchaser. These negotiations commenced before Person A and later, Person B, passed away and have continued until the contract was signed.

Accordingly, the Commissioner has considered your facts and circumstances will exercise the discretion under subsection 152-80(3) of the ITAA 1997 and extend the period for you to dispose of Person A's Interest A in the land to June 20XX.

Question 2

Section 152-80 of the ITAA 1997 says that a CGT event happens to an asset or interest within 2 years of individual's death.

Subsection 152-80(1) of the ITAA 1997 states this section applies if:

(a) a CGT asset:

(i) forms part of the estate of a deceased individual; or

(ii) was owned by joint tenants and one of them dies; and

(b) any of the following applies:

(i) the asset devolves to the individual's legal personal representative;

(ii) the asset passes to a beneficiary of the individual;

(iii) an interest in the asset is acquired by the surviving joint tenant or tenants (as the case may be) as mentioned in section 128-50;

(iv) the asset devolves to a trustee of a trust established by the will of the individual; and

(c) the deceased individual referred to in subparagraph (a)(i) or (ii) would have been entitled to reduce or disregard a capital gain under this Division if a CGT event had happened in relation to the CGT asset immediately before his or her death; and

(d) a CGT event happens in relation to the CGT asset within 2 years of the individual's death.

Subsection 152-80(3) of the ITAA 1997 says that the Commissioner may extend the time limit in paragraph (1)(d).

In determining whether to allow an extended asset replacement period, 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, other than the Commissioner, or of established practices

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

•         whether there is mischief involved, and

•         the consequences of the decision.

In this case, Person A's Interest B passed to Person B on their passing. Person B then passed within 3 months resulting in 100% of the Interest B delved to their legal personal representative and the two estates being administrator simultaneously.

There were also difficulties and delays in contract negotiations for the sale of the land to the purchaser. These negotiations commenced before Person A and later, Person B, passed away and have continued until the contract was signed.

Accordingly, the Commissioner has considered your facts and circumstances will exercise the discretion under subsection 152-80(3) of the ITAA 1997 and extend the period for you to dispose of Person's Interest B in the land to June 20XX.