Private ruling: Small business concessions - 2 year discretion
Date of advice: 8 April 2019
Published: May 2019
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) and allow an extension of time to the two year period so that the small business capital gains tax (CGT) concessions can be applied? | A1: Yes. As the deceased satisfied the basic conditions for the small business concessions, just prior to their death, you are eligible to apply the concessions to the same extent the deceased could have at that time. Having considered your circumstances and the relevant factors, the Commissioner will allow an extension of time to the two year period so that the small business CGT concessions can be applied. Further information about this discretion can be found by searching 'QC 52292' on ato.gov.au

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. A few years after the introduction of capital gains tax the deceased started a business (Business Y) with some partners where they held a percentage share. Shortly after the commencement of Business Y, the deceased their partners and Person Z formed Business Z - where the deceased held a percentage share (the business partners). Sometime after the business partners formed Business Z, the business partners setup Unit Trust A, where the deceased held a percentage share. A long time after Unit Trust A was setup the deceased passed away. At the date of death of the deceased, the deceased met the maximum net asset value (MNAV) test set out in section 152-15 of the ITAA 1997. You are the deceased spouse (you). Shortly after the death of the deceased you engaged Solicitor A. Many letters were written to the partners of Business Y, Business Z and Unit Trust A over a period of approximately X months with no response. Solicitor A was let go. A short time later you had a meeting with your accountant, and the accountant for Business Y to get a valuation of the businesses. You appointed Solicitor B (your solicitor). You suffered through an extreme natural disaster. During this time you received a call from your solicitor asking if you had signed the Probate papers. You were confused and distressed at this time and were placed with Person Y from your solicitors. A short time later your solicitor appointed Accountant X (your accountant) on your behalf. Your accountant had difficulty getting the financial statements from the accountant for Business Y. Sometime later a valuation of the property owned by Unit Trust A was completed. You declined an offer made to you by the business partners as they wanted a large discount. A few months later your accountant had a meeting with the accountant for Business Y. It was discovered that rent was being paid to Unit Trust A. The accountant for Business Y eventually conceded that Unit Trust A were employing the business partners and paying their wages. A short time later your accountant wrote to the accountant for Business Y regarding incomplete documentation relating to the properties and pointed out as trustee of Unit Trust A you should be aware of your obligations to maintain accounts as set out in clause XX. Another meeting took place between your accountant and the accountant for Business Y. In that meeting the accountant for Business X advised that an agreement had been made between the business partners stating that their aim was to run the businesses for X years and after that point sell if agreed. The accountant for Business Y also advised that at this point it was agreed that if one partner died they would be paid entitlements. Soon after the meetings you received a letter from your solicitor stating that by the time the X years comes around the estates interest in the Business Y would be worth very little if anything. Your solicitor advised you that you were not in a very good position to force the business partners to pay you out as you were only a shareholder and the business partners would not buy your share. Sometime after the expiry of the X year timeframe you sent a letter to your solicitor notifying them you had sold your property. This would enable you to pay some of the solicitors and accountants costs. A short time later a letter was sent to the solicitor for Unit Trust A (Solicitor U). Business Y and Z had stopped paying rent to Unit Trust A. Your solicitor’s letter stated it would be difficult to justify Unit Trust A not seeking payment of rent as the tenants were associated with the two trustees of Unit Trust A. Your solicitor suggested they remove the trustees and replace them with independent trustees A few months later the business partners of Unit Trust A said they were not going to buy out the units in the trust unless they had a substantial discount or payment plan. Shortly after the business partners asked for a discount a new valuation of the property was complete. The business partners made a discounted offer to you to settle your share in Unit Trust A. You declined. A few months later you received a letter from your solicitor explaining the reason for this matter taking so long to reach a favourable outcome is that the estate holds minority units in the unit trust and the trust deed has no provision to force the others to buy the estate units. A short time later you sent a letter to your solicitor stating you weren’t prepared to give them a discount and how this entire matter had adversely affected your life and the life of your child. Approximately X months later you wrote a letter to your solicitor stating you would sell your units in Unit Trust A for $XXX,XXX. The offer was accepted by the business partners. A short time later the units in Unit Trust A were sold.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 150 - 80 | Income Tax Assessment Act 1997 section 152-15