Edited version of private advice

Authorisation Number: 1052382128581

Date of advice: 10 April 2025

Ruling

Subject: CGT - deceased estate

Question 1

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 allow the small business capital gains tax concessions to be applied to the sale of the interest in the properties held by the Deceased's Estate?

Answer 1

Yes. The Commissioner is exercising the discretion under subsection 152-80(3) to extend the time limit for a CGT event to happen in relation to the properties upon considering the relevant circumstances.

The relevant facts are presented below:

•                the Deceased's spouse was granted a life interest in the properties which would have prevented the Deceased's Estate from selling the properties until the Deceased spouse's passing or upon their agreement to sell and surrender their life interest; and

•                the properties could not be sold by the Executor of the Deceased's Estate until the dispute was resolved in January 20XX.

Question 2

Will the Deceased's Estate be entitled under section 152-80 of the ITAA 1997 to apply the 15-year exemption in Subdivision 152-B of the ITAA 1997 to disregard any capital gain arising from the Deceased's interest in the sale of the properties?

Answer 2

Yes. The Deceased would have satisfied all the relevant requirements under section 152-105 of the ITAA 1997 in relation to the properties, immediately before their death. The Deceased and the Deceased's spouse were carrying on a business in partnership that was a small business entity just before the Deceased's passing. The properties were used in this partnership for the entire ownership period, making them an active asset. The properties were held for XX years prior to the Deceased's passing.

Accordingly, by operation of section 152-80 of the ITAA 1997, the Executors of the Deceased's Estate are entitled to disregard the capital gain made from disposing of the properties in the same way as the Deceased would have been able to under subdivision 152-B of the ITAA 1997.

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commenced on:

April 20XX

Relevant facts and circumstances

The Deceased passed away in April 20XX. The Deceased was over XX at the time of their death.

The Properties - Active Asset

The Deceased owned X farming properties with their spouse as Tenants in Common.

The properties were transferred to the Deceased and their spouse in September 19XX as part of an intergenerational transfer.

The properties were used in a primary production business, trading through a partnership structure for the entirety of the Deceased's ownership period. The aggregated annual turnover of the partnership for the income year prior to the income year the Deceased died was less than $X million. The aggregated annual turnover of the partnership that included the Deceased's Estate for the income year prior to the year the properties were sold was also less than $X million. The partnership, at the date of death and the partnership which included the Deceased's Estate, have always been small business entities as defined in Subdivision 328-C of the ITAA 1997.

Relevant circumstances

In accordance with the Deceased's Will, their child and child in-law were appointed Executors and Trustees of their Estate.

In the years after the Deceased's death, the partnership continued to operate the primary production business, with the Deceased's Estate being in receipt of the Deceased's share of the taxable distributions.

The Deceased's Estate was to hold the Deceased's assets and carry on the farming business for the benefit of the Deceased's spouse during their lifetime. Therefore, a life interest in the properties was granted to the spouse. After the spouse's passing, the Deceased's share of the properties was to be left to their child (one third) and grandchildren (two thirds).

The spouse contested the Deceased's Will, as the Deceased changed their Will later in life without their knowledge. The Deceased changed their Will with the intention for their child and grandchildren to receive compensation if they were to sell the Deceased's share of the properties to their spouse, if their spouse desired to the own the properties in full. The spouse contested the Will on the grounds they were not prepared to purchase the Deceased's share of the properties.

The Deceased's Will continued to be in dispute up to January 20XX. Throughout the dispute, the Deceased's assets that were held with the spouse (e.g., the properties) could not be dealt with by the Executors of the Deceased's Estate.

The spouse first contested the Will in April 20XX.

In August 20XX, mediation was held between the spouse and the Executors of the Deceased's Estate. At the conclusion of the mediation, no formal resolution was reached. An offer was made for the properties to be transferred to the spouse; however, the spouse still disputed they should not have to bear the transfer costs, particularly the significant stamp duty payable in relation to the transfers.

The legal representative (LR) to the Executors of the Deceased's Estate, sent a letter to the spouse's LR proposing a settlement. From September 20XX to January 20XX, the Executors' LR continued to make contact attempts with the spouse's LR and did not receive a response.

Sometime after, the disputing parties agreed in principle that a Deed of Settlement (Deed) would be entered into and would only be binding on the condition the spouse, the Executors of the Deceased's Estate and the grandchildren sign it. In April 20XX, the spouse's LR made a request to the Executors' LR suggesting the Deed should reflect the offers made at mediation. In September 20XX, the spouse's LR sent the Deed to the Executors' LR. This Deed was executed by the spouse and X of X grandchildren. The Executors' LR requested that all grandchildren execute the Deed.

The spouse's LR threatened to make an application to the Supreme Court if the Executors of the Deceased's Estate did not sign the Deed by November 20XX. The Deed was signed by the Executors of the Deceased's Estate and all but 1 grandchild. The binding nature of this Deed was questioned.

From March 20XX to November 20XX, correspondence continued between the LRs as the Deceased's spouse was still contesting their responsibility to pay stamp duty costs.

In December 20XX, the Deceased's spouse passed away. In May 20XX, a formal resolution between the Executors of both the Deceased and their spouse's Estates was proposed. It was decided to forego the provisions of the Deed as there was a lack of signatures and it was not legally binding. Instead, each Estate was to be administered in accordance with both the Deceased and their spouse's Wills.

From August 20XX to November 20XX, correspondence regarding the settlement was carried out between the LRs.

In January 20XX, a resolution was reached and the properties subsequently listed for sale. The contract dates for the sale of the properties were in May 20XX.

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 152-80

Income Tax Assessment Act 1997 section 152-105