Private ruling: Capital gains tax
Published: February 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

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

Relevant facts and circumstances: The deceased owned an interest in the property. The deceased carried on a business of primary production on the property. The deceased's ownership interest in the property was inherited by the deceased and their spouse in the early 1960's. A portion of the property was transferred to the deceased's children. These children are also beneficiaries of the estate. The deceased inherited the spouse's share upon their death. The deceased would have been entitled to apply the 15 year exemption if they had sold the property just prior to their death. The Will required the property to be subdivided and the lots split amongst the beneficiaries. The trustees were advised that the development was not possible under the present planning regime of the local council. As such, the trustees were unable to distribute the property as set out in the Will. The beneficiaries were unable to agree on an equitable process to carry out the wishes of the deceased and multiple beneficiaries contested the will. After a protracted mediation process, an agreement between all beneficiaries was reached with the signing of a deed in the 2011-12 financial year. Under this deed, the parties agreed that it was not possible to give effect to the directions provided to the executors under the will. The property has been sold and settlement is due to occur in the 2014-15 financial year.

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 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 would have been able to apply the small business concessions to the property had he disposed of it immediately prior to his death. Therefore, you would also have had access to the concessions had you disposed of the property within two years of their death. You will only be able to apply the small business CGT concessions if the Commissioner extends the time period in which you can dispose of the property and still be able to apply the concessions. 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. 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.