ATO ID 2012/39: Capital gains tax small business retirement exemption: deceased estate - choice by executor
Date of decision: 1 May 2012
Year of income: Year ending 30 June 2012
Business line: Private Groups and High Wealth Individuals

Issue
Can the executor of a deceased estate, when preparing outstanding income tax returns of the deceased, aged 55 at the time of their death, make a choice to disregard under subsection 152-305(1) of the Income Tax Assessment Act 1997 (ITAA 1997) all or part of a capital gain made by the deceased before their death?

Decision
Yes. The executor of a deceased estate, when preparing outstanding income tax returns of the deceased, can make a choice under subsection 152-305(1) of the ITAA 1997 (if the condition in paragraph 152-305(1)(a) of the ITAA 1997 is met) to disregard all or part of a capital gain made by the deceased before their death.

Facts
A taxpayer sold an asset that was used in a business they conducted as a sole trader. When the asset was sold the business ceased. A capital gain was made on the disposal of the asset. The taxpayer died before lodging an income tax return for the income year in which the asset was sold. The taxpayer was aged 55 years at the time of their death. The executor of the deceased estate, in preparing the deceased's outstanding income tax returns, is seeking to choose the retirement exemption under subsection 152-305(1) of the ITAA 1997.

Reasons for decision
Summary: Paragraph 152-305(1)(a) of the ITAA 1997 allows an individual aged 55 or over at the time of choosing to choose to disregard all or part of a capital gain from a CGT event if the basic conditions for relief in Subdivision 152-A of the ITAA 1997 are satisfied for the gain. The choice must have been made by the day the individual's income tax return for the income year in which the relevant CGT event happened was lodged, or within a further time allowed by the Commissioner (subsection 103-25(1) of the ITAA 1997). On the death of a taxpayer, an executor, in effect, steps into the shoes of the deceased and winds up the deceased's personal affairs (Taxation Ruling IT 2622, paragraph 2). An executor is treated as a trustee for income tax purposes (subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), section 995-1 of the ITAA 1997). There are various provisions in the tax law that provide for or require a trustee to be answerable as taxpayer for the doing of all necessary things under the law and, in the case of the estate of a deceased person, make returns that are the same (as far as practicable) as the deceased would have made (section 254 of the ITAA 1936). Also, under section 260-140 of the Taxation Administration Act 1953 , the Commissioner may in certain circumstances deal with the trustee of a deceased estate as if the trustee were the deceased person and the deceased were still alive. As such, it is accepted that the executor of a deceased estate, when preparing outstanding income tax returns of the deceased, can make a choice to disregard under paragraph 152-305(1)(a) of the ITAA 1997 all or part of the capital gain made by the deceased before their death.

Legislative references: Income Tax Assessment Act 1997 subsection 103-25(1) subsection 152-305(1) paragraph 152-305(1)(a) section 995-1 Subdivision 152-A
Related public rulings and determinations: Taxation Ruling IT 2622
Subject references: Capital gains tax CGT small business relief Small business retirement exemption CGT choice Deceased estates Executors