Private ruling: Capital gains tax – extending the two year time period
Date of advice: 9 January 2018
Published: May 2018
Ruling period: 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise the discretion under section 152-80 of the Income Tax Assessment Act 1997 (ITAA 1997) and extend the two year time period? | A1: No

Relevant facts and circumstances: You purchased property in 20XX and you ran a business from this premise until 20XX. You passed away in 20XX and did not leave a Will. As there was no Will, appropriate steps were undertaken through the court to have a nominated executor to administer the deceased’s estate, which took time. The court appointed an administrator in 20XX. From the deceased’s date of death (DOD), the administrator suffered an illness. The property was secured by a bank and to service the bank a relative prepared the property for rental purposes. The property was rented to an unrelated entity. From the advice of the bank, the title of the property also remained in the deceased’s name until the property was sold. The property was not made available for sale by the administrator at any time, until approached by the tenant renting the property. An offer was made to purchase the property as a going concern. As this was a private sale, this was conducted in 20XX. The transfer of the property occurred accordingly and settlement was in 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 115-5 | Income Tax Assessment Act 1997 Section 152-80.

Reasons for decision: Summary: Section 152-80 of the Income tax Assessment Act 1997 (ITAA 1997) allows the legal personal representative (LPR) of the deceased to apply the small business capital gains tax (CGT) concessions if the conditions set out in subsection 152-80(1) of the ITAA 1997 are satisfied. In your case, the relevant conditions to be satisfied are: ● the asset forms part of the estate ● the asset devolves to the individual’s LPR, beneficiary or joint tenant ● the deceased would have been entitled to reduce or disregard a capital gain under Division 152 of the ITAA 1997 if a CGT event had happened in relation to the CGT asset immediately before his or her death, and ● a CGT event happens in relation to the CGT asset within two years of the individual’s death. The two year time limit prescribed may be extended by the Commissioner in certain circumstances. 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. | Detailed Reasoning - Disposal of asset after two‑year time limit: If a person carrying on a business dies and their assets devolve to their LPR, beneficiary, surviving joint tenant or trustee or beneficiary of a testamentary trust (the transferee), the active asset test is applied to the transferee in relation to any capital gain made on a sale of the assets after the two‑year time limit (or such further time that the Commissioner allows). This means that if the transferee does not continue to carry on the deceased’s business, or use the asset in another business, after the two‑year time limit, the active asset test may not be satisfied and the small business concessions may not be available. | Detailed Reasoning - Application to your circumstances: The deceased acquired property and ran a business for eleven years up until their DOD. The deceased satisfied the basic conditions for the small business concessions as the property was an active asset for the whole ownership period. The deceased would have qualified for the small business concessions, if the property had been disposed of immediately before their death or if a CGT event happened within two years of their death. The transferee did not continue to carry on the deceased’s business and did not make the property available for sale. The deceased’s relative assisted in preparing the property for rent. The property was rented from 2012 to 2015 until the property was disposed in 20XX. We acknowledge the issues the widow endured during this time. Having considered the circumstances and the factors outlined above, the Commissioner is unable to apply his discretion under section 152-80 of the ITAA 1997 and allow an extension of time. | Detailed Reasoning - In summary to the deceased: The deceased has not satisfied the small business concessions and therefore any capital gain cannot be disregarded. As the asset devolved to their LPR, beneficiary or surviving joint tenant, they are taken to have acquired the asset on the DOD and is subject to the normal CGT rules. You are entitled to a partial exemption and the first element of your cost base and reduced cost base is at the DOD. You can also apply the discount percentage for a discount capital gain.