Private ruling: Capital gains tax
Date of advice: 8 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise the discretion under subsection 118-195(1) of the Income Tax Assessment Act 1997 and allow an extension of time for the pre-CGT assets of the deceased to be disposed of? | A1: Yes. | Q2: Will the Commissioner exercise the discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 to extend the time limit for the assets to be disposed of so that the small business capital gains tax concessions can be applied? | A2: Yes.

Relevant facts and circumstances: The deceased owned a number of properties which were acquired both before and after 20 September 1985. Some of these were used in the course of carrying on a business of the deceased and others were rental properties. The properties were not sold within two years of the deceased's passing. The executor of the estate had a severe illness throughout the administration of the estate and subsequently passed away. In addition, a number of relatives of the deceased who were also helping with the administration of the estate also suffered severe illness over this period.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Subsection 152-80(3) | Income Tax Assessment Act 1997 - Subsection 118-195(1)

Reasons for decision: Summary: Subsection 118-195(1) of the ITAA 1997 states that if you own a dwelling in your capacity as trustee of a deceased estate (or it passed to you as a beneficiary of an estate), then you are exempt from tax on any capital gain made on the disposal of the property if: • the property was acquired by the deceased before 20 September 1985, or • the property was acquired by the deceased on or after 20 September 1985 and the dwelling was the deceased's main residence just before the deceased's death and was not then being used for the purpose of producing assessable income, and • your ownership interest ends within 2 years of the deceased's death (the Commissioner has discretion to extend this period in certain circumstances). You have an ownership interest in a property if you have a legal interest in the property. This means that if you sell a property, your ownership interest continues until the date of settlement (rather than the date the contract of sale is signed). In this case, the properties were acquired by the deceased before 20 September 1985. As a result, there is no requirement for the dwellings to have been their main residence. The properties were not sold within two years of the deceased's passing. Accordingly, you will only be able to disregard the capital gain from the sale of the properties if the Commissioner extends the two year time period. The Commissioner can exercise his discretion in situations such as where: • the ownership of a dwelling or a will is challenged; • the complexity of a deceased estate delays the completion of administration of the estate; • a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has severe illness or injury); or • settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. Having considered the circumstances and the factors outlined above, the Commissioner is able to apply his discretion under subsection 118-195(1) of the ITAA 1997 and allow an extension of time until the settlement date of the properties. When an individual dies, section 152-80 of the Income Tax Assessment Act 1997 (ITAA 1997) allows their legal personal representative or a beneficiary to access the small business CGT concessions to the extent that the deceased would have been able to access them just before they died. In order to apply the concessions the CGT events must happen in relation to the CGT assets within two years of the individual's death. This time limit may be extended by the Commissioner under 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 has considered 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. Having considered the circumstances of this particular case and the factors outlined above, the Commissioner is able to apply his discretion to extend the time limit in paragraph 152-80(1)(d) of the ITAA 1997 to cover the sale of the properties.