Private ruling: Deceased Estate Small Business Concessions Two year discretion
Date of advice: 28 October 2016
Published: February 2017
Ruling period: 201Z
Date scheme commenced: 1 July 201Y

Ruling: Q2: Will the Commissioner exercise his discretion under s152-80(3) to extend the two year period following the death of the deceased until settlement of the property? | A1: Yes Issue 2 | Q3: Is the Estate of the deceased entitled to the small business 15 year exemption on the sale of one 50% interest of the land? | A2: Yes | Q4: Is the Estate of the deceased entitled to the small business active asset 50% discount and the small business retirement exemption on the sale of the other 50% interest in the land? | A3: Yes

Relevant facts and circumstances: An individual (the deceased) and his relative purchased some of farm land (the property), in equal shares on a date in 199X. The property was farmland and has never had a dwelling on it. The property was used for running cattle from the date of purchase. The deceased returned primary production income and losses from the time the property was purchased. The relative died on a date in 201W. The deceased received ownership of their 50% share in the property on this date. The deceased retired from actively farming at the end of the 201X financial year. After this point the property was retained as a hobby. Stock numbers were reduced to a hobby level. The deceased died on a date in 201Y. At this date the deceased's net assets were less than $6 million. The property was the final asset of the estate disposed of. There was some delay establishing the exact boundaries. The property was first listed for private sale, but when it didn't sell, it was auctioned. The property sold at auction on a date in 201Z, some two years and a few days after the deceased's death.

Relevant legislative provisions: Division 152 of the Income Tax Assessment Act 1997 | Subdivision 152-B of the Income Tax Assessment Act 1997 | Subdivision 152-C of the Income Tax Assessment Act 1997 | Subdivision 152-D of the Income Tax Assessment Act 1997 Section 152-10 of the Income Tax Assessment Act 1997 | Section 152-15 of the Income Tax Assessment Act 1997 | Section 152-35 of the Income Tax Assessment Act 1997 | Section 152-40 of the Income Tax Assessment Act 1997 | Section 152-49 of the Income Tax Assessment Act 1997 | Section 152-80 of the Income Tax Assessment Act 1997 | Section 152-105 of the Income Tax Assessment Act 1997 | Section 152-205 of the Income Tax Assessment Act 1997 | Section 152-305 of the Income Tax Assessment Act 1997

Reasons for decision: Detailed Reasoning - Question 1: Under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997), the small business concessions are available to reduce a capital gain providing certain conditions are satisfied. The legal personal representative (LPR) or beneficiaries are entitled under section 152-80 of the ITAA 1997 to reduce or disregard a capital gain under Division 152 of the ITAA 1997 in the same way as the individual would have been entitled to reduce or disregard it if certain conditions set out in subsection 152-80(1) of the ITAA 1997 are met. These conditions are:- ● that the CGT asset forms part of the estate of a deceased individual ● the asset devolves to the individual's LPR or passes to a beneficiary of the individual ● the individual would have been entitled to reduce or disregard the capital gain under Division 152 of the ITAA 1997 if a CGT event had happened in relation to the CGT asset immediately before his death, and ● a CGT event happens in relation to the CGT asset 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 your case you had some difficulties when you came to sell the property, and the two year period was only exceeded by a very short time. The Commissioner has taken into consideration your circumstances, which were beyond your control, and will extend the time limit in paragraph 152-80(1)(d) of the ITAA 1997 to and inclusive of 201Z, when the property was disposed. | Summary: If the deceased had sold the 50% share of the property that they acquired in 199X immediately before their death they would have been eligible to apply the 15 year exemption to disregard any capital gain. Therefore, as the Commissioner has extended the two year period up until the settlement of the property, the estate will also be able to disregard the capital gain on the sale of this 50% of the property. | Detailed Reasoning - Detailed reasoning: The basic conditions for accessing the small business CGT concessions under Subdivision 152-A of the ITAA 1997 are that (a) there be a GGT event, (b) there be a gain, (c) the taxpayer be carrying on a small business or meet the maximum net asset test, and (d) that the asset satisfy the active asset test. Under Subdivision 152-B of the ITAA 1997, where an interest in a property meets the basic tests in Subdivision 152-A and (a) was owned for more than 15 years, (b) the taxpayer is over 55 and (c) the sale was related to their retirement, the gain on the sale may be disregarded. Section 152-80 says that where a property is sold within two years of the taxpayer's death, or longer as allowed by the Commissioner, the condition regarding retirement does not apply and the estate or beneficiaries will be able to access these concessions. The deceased had owned their 50% share of the property acquired in 199X for more than 15 years, and it was an active asset for more than 15 of those years. At the time of their death, the deceased was under the maximum net asset limit. They were over the age of 55. As the property met both the basic tests listed in section 152-10 and the additional tests in section 152-105, and as the Commissioner has agreed to extend the two year period, you are able to disregard the capital gain on this 50% interest in the property. | Summary: As the deceased obtained their interest in the remaining 50% share of the property on the death of their relative, the estate is unable to access the 15 year exemption for this interest. However, this interest in the property was an active asset for more than 50% of the ownership period, and so qualifies for both the active asset discount and the retirement exemption. | Detailed Reasoning - Detailed reasoning: The 15 year exemption is only available where an active asset has been owned for 15 years. As the deceased inherited this interest on a date less than 15 years before the deceased's death, the estate is not eligible for a Subdivision 152-B exemption. However, as the interest was an active asset for more than 50% of his ownership period, and the other basic conditions are met, the estate will be eligible to apply the active asset 50% discount under section 152-210 of the ITAA 1997, as well as the retirement exemption under section 152-310 of the ITAA 1997 where there remains an unused portion of the deceased's $500,000 lifetime cap.