Private ruling: Extension of two year rule for small business concessions
Date of advice: 25 May 2016
Published: July 2016
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 (ITAA 1997) to extend the time limit to allow for the sale of the business property? | A1: Yes.

Relevant facts and circumstances: The deceased passed away in 20XX. At the time their passing they co-owned the property with a family member as tenants in common. The property was acquired in 20AA. The property has been used to earn income from the carrying out of primary production activities and also the non-primary production activities for the time it was owned. Probate for was granted in 20XX. In 20XX the Executors engaged a real estate agent to sell the property. The agreed asking price was between $BBB and $CCC. Over the next several years the estate agents advertised and promoted the property for sale extensively but were unable to sell the property within the two year timeframe. The property was sold in 20YY for $DDD. Prior to the property being sold there were two offers from the eventual buyer that were rejected before the final offer was accepted. No other third parties made an offer of purchase on the property prior to sale. The trend of failing real estate prices in the area the property was located and the district being in a decline meant that the Executors had to sell the property for less than asking price in order to sell the property in a reasonable time.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 152-80

Reasons for decision: Summary: When a taxpayer acquires a capital gains tax (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. On the basis that eligibility to the small business concession has been self-assessed, 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. In this case the real estate agents actively advertised the property but were unable to make a sale in the two year timeframe allotted. After a length of time being advertised only one party was interested in purchasing the property and made offers. After negotiations you were finally able to sell the property at less than asking price due to lack of interest in the property. 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. Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions. The period of extension has a reasonable explanation given the circumstances and an extension will be granted until 20YY. | Detailed Reasoning - Further issues for you to consider: This ruling has not fully considered your eligibility for the CGT small business concessions; it has only addressed the eligibility of extension of time under the specified provisions of the ITAA 1997. You should ensure that you satisfy all the basic conditions and other relevant conditions for eligibility. More information is available in the publication Advanced guide to capital gains tax concessions for small business 2014-15 (QC 44192), which is available on our website www.ato.gov.au.