Private ruling: Capital gains tax
Published: April 2014
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow extra time to apply the small business capital gains tax (CGT) concessions? | A1: Yes.

Relevant facts and circumstances: The deceased passed away during the relevant financial year. Probate was granted on the Will of the deceased during the subsequent financial year. The Will of the deceased provides for various specific bequests and gifts before dealing with the residuary estate. The Will expressly provided for certain assets to be held for period of between two and twenty years. The estate of the deceased was reasonably complex involving various business activities and assets. Two children (you and individual A) survived the deceased. Individual A brought about proceedings, pursuant to the Inheritance (Family Provision) Act 1972 , in the Supreme Court. The legal personal representative also brought proceedings in the Supreme Court to be authorised to continue to conduct the businesses of the deceased. In the course of the proceedings the Supreme Court encouraged the parties to mediate the claim. As a result of the mediation held during the 20XX financial year, the parties to the proceedings have agreed to settle the claims. The parties to the proceedings have been attempting to agree on the terms of a Deed of Family Arrangement. On and after the execution of the Deed, various steps will be taken by the legal personal representative to effect the completion of the administration of the estate in accordance with the Will and the Deed. Various assets will pass to you from the estate. The deceased would have been entitled to apply the small business concessions to these assets just prior to 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: Summary: When a taxpayer acquires a CGT asset, including acquisition by inheritance, they are potentially liable for tax on any capital gain on that asset when a CGT event subsequently happens to it. In some instances, a taxpayer can reduce the capital gain made from a CGT event by applying the small business CGT concessions. Section 152-80 of the ITAA 1997 potentially extends the availability of the small business CGT concessions to an asset held by a legal personal representative or beneficiary of a deceased estate, to the extent that the deceased would have been entitled to the concessions, if a CGT event happens to the asset within two years of the death. Section 152-80 of the ITAA 1997 allows either the legal personal representative of an estate or the beneficiary to apply the small business CGT concessions in respect of the sale of the deceased's asset in certain circumstances. Specifically, the following conditions must be met: • the asset devolves to the legal personal representative or passes to a beneficiary, and • the deceased would have been able to apply the small business concessions themselves immediately prior to their death, and • a CGT event happens within two years of the deceased's death unless the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997. In this case, the deceased passed away in the relenant financial year. Various assets will pass to you under a Deed of Family Arrangement. The deceased would have been able to apply the small business concessions to these assets had they disposed of them immediately prior to their death. Therefore, you would also have access to the concessions if you disposed of the assets within two years of their death. In determining whether the discretion to allow further time would be exercised, the Commissioner has considered the following factors: • evidence of an acceptable explanation for the period of the extension requested (and whether it would be fair and equitable in the circumstances to provide such an extension) • prejudice to the Commissioner which may result from the additional time being allowed (but the mere absence of prejudice is not enough to justify the granting of an extension) • unsettling of people, other than the Commissioner, or of established practices • fairness to people in like positions and the wider public interest • whether any mischief is involved, and • consequences of the decision. In this case, individual A brought about proceedings pursuant to the Inheritance (Family Provision) Act 1972 in the Supreme Court. The relevant parties are attempting to agree on the terms of the Deed of Family Arrangement. On and after the execution of the Deed, various steps will be taken by the legal personal representative to effect the completion of the administration of the estate in accordance with the Will and the Deed. Having considered the relevant facts, the Commissioner is able to apply his discretion under subsection 152-80(3) of the ITAA 1997 and allow an extension to the time limit.