Edited version of private advice

Authorisation Number: 1052297542866

Date of advice: 13 September 2024

Ruling

Subject: Commissioner's discretion - deceased estate

Question

Will the Commissioner exercise the discretion under section subsection 152-80(3) to extend the time limit under section 152-80(1)(d) of theIncome Tax Assessment Act 1997 (ITAA 1997) in relation to the sale of assets of a deceased estate?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.         The Deceased Husband and the Deceased Wife had an interest in farm property including residential properties.

2.         The Family Trust was the main operator of a farming business.

3.         The Deceased Husband and Deceased Wife were beneficiaries of the Family Trust.

4.         The Deceased Husband passed away on DDMMYYYY, with the date of probate being DDMMYYYY.

5.         The Deceased Wife passed away on DDMMYYYY, with the date of probate being DDMMYYYY.

6.         The Family Trust commenced winding down the business while continuing to operate after the death of the Deceased Husband and Deceased Wife.

7.         The Family Trust commenced disposal of various stocks and plant and equipment.

8.         The legal personal representatives of the Deceased Husband engaged a real estate agent to list the property for sale by Expressions of Interest closing DDMMYYYY.

9.         All properties were sold to an independent third party with contract of sale dated DDMMYYYY and the agreed settlement on DDMMYYYY.

10.      The original contract of sale was rescinded, and new contracts were executed on DDMMYYYY to change the purchaser to conform with the terms of the will.

11.      New contracts of sale settled on DDMMYYYY.

12.      The legal personal representatives of both deceased took all reasonable steps to dispose of the assets within the required time frame.

13.      The delay was in part due to commercial decisions of the new purchasers.

14.      The assets sold would have qualified for the small business CGT concessions if the deceased had disposed of the assets immediately before their death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 152-80

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

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 ('ITAA 1997') unless otherwise stated.

Summary

The Commissioner will exercise his discretion under subsection 152-80(3) to extend the time period until the date the property was sold.

Detailed reasoning

Section 152-80 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 assets in certain circumstances.

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

In determining whether a longer period will be allowed, the Commissioner will consider a range of factors such as:

•         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

•         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 the circumstances

As the disposal of the property did not occur within 2 years of the Deceased's death, you will only be able to reduce or disregard the capital gain made on the disposal of the interest in the land if the Commissioner extends the 2-year time limit.

In your case, there is a reasonable explanation for the delay in the disposal of the property. The complexities involved in administering the estate, in particular the need to rescind the original contract of sale, and the execution of the new contracts to conform with the terms of the will, impacted on the sale of the property and led to it being sold just outside the 2-year period. There is no evidence of mischief, and it is accepted that if the extension of time is granted, the exercise of the discretion will not prejudice the Commissioner, nor cause any unsettling of people or of established practices.

Accordingly, the Commissioner will exercise his discretion under subsection 152-80(3) to extend the time period until the date the property was sold in MMYYYY.