Private ruling: Small business capital gains tax concessions
Date of advice: 25 January 2016
Published: March 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

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 the small business capital gains tax (CGT) 15 year exemption to be applied in relation to the capital gain resulting from the sale of the Property? | A1: Yes.

Relevant facts and circumstances: The taxpayer acquired a property after 20 September 1985. The taxpayer used the property to operate a business until their death aged over 55, more than 15 years later. Upon their death, their will established a testamentary trust to hold the property and conduct the business conditionally until an event occurred. A contract to sell the property was entered into over two years after the death of the taxpayer. The business was a small business entity.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 152-80 | Income Tax Assessment Act 1997 Section 152-105

Reasons for decision: Summary: Section 152-80 of the ITAA 1997 allows either the legal representative of an estate or the beneficiary to apply the small business CGT concessions in respect of the sale of the deceased's CGT assets in certain circumstances. Specifically, the following conditions must be met: • the asset devolves to the legal personal representative, passes to a beneficiary or devolves to a trustee of a trust established by the will of the individual • the deceased would have been able to apply the small business concessions themselves if they had disposed of the asset immediately prior to their death, and • a CGT event happens within 2 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 Property is a CGT asset which devolved a trust established by the taxpayer's will. Thus, the first condition has been met. Small business 15 year exemption An individual can disregard a capital gain from a CGT event happening to a CGT asset they have owned for at least 15 years if they: • satisfy the basic conditions for the small business CGT concessions • continuously owned the CGT asset for the 15 year period ending before the CGT event happened, and • when the CGT event happened: • they were permanently incapacitated, or • they were 55 years or older and the event happened in connection with their retirement. The beneficiary of a deceased estate will be eligible for the 15 year exemption to the same extent that the deceased would have been just prior to their death, except that: • the CGT event does not need to be in connection with the retirement of the deceased, and • the deceased needs to have been 55 or older immediately before their death, rather than at the time of the CGT event. In this case, the taxpayer would have been entitled to reduce the capital gain using the 15 year exemption had he sold the property immediately prior to their death as: • they continuously owned the property for more than 15 years • the property was used in a business which was a small business entity • the property was an active asset, and • the taxpayer was over 55 years of age when they passed away. Extension to apply small business CGT 15 year exemption As stated above, the trustee of the rust may apply the 15 year exemption to the capital gain resulting from the sale of the property where the property is sold within two years of taxpayer's death unless the Commissioner extends the time period in accordance with subsection 152-80(3) of the ITAA 1997. The Commissioner may exercise his discretion to allow an extension of time under subsection 152-80(3) of the ITAA 1997 in situations where: • there is a significant delay in obtaining probate • the will is contested or challenged • the complexity of a deceased estate delays the completion of administration of the estate • a trustee or beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period (for example, the taxpayer or a family member has a severe illness or injury), or • settlement of a contract of sale is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control. In determining whether the discretion to allow further time would be exercised, the Commissioner considers 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. After considering your circumstances and the factors above, the Commissioner has exercised his discretion to extend the time limit to allow the small business 15 year exemption to be applied in relation to the capital gain from the sale of the property.