Private ruling: Capital gains tax - small business concessions - Commissioner's discretion
Date of advice: 26 July 2017
Published: November 2017
Ruling period: Year ended 30 June 2013. | Year ended 30 June 2014. | Year ended 30 June 2015. | Year ended 30 June 2016.
Date scheme commenced: 10 July 1990.

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 for the active assets to be disposed of for the capital gains tax (CGT) small business concessions to be applied? | A1: Yes.

Relevant facts and circumstances: Your spouse passed away some years ago. More than 15 years before their passing, you and your spouse acquired a property as joint tenants. Upon acquisition of the property, you and your spouse relocated your family business, which you previously operated in partnership from rented premises. You and your spouse operated the business from the property until the business ceased over 15 years later. Before the business ceased, you and your spouse were approached by a real estate agent who had a prospective buyer. You and your spouse came to terms to sell the property and cease the family business. At this stage, your employees were let go, and fixtures, plant and equipment were sold. You and your spouse retired, both aged over 55. The prospective purchaser was unable to obtain the necessary finance and the sale of the property fell through. You were unable to readily reopen the business as you and your spouse had sold off the fixtures, plant and equipment, while you incurred significant expenses in relation to the property. These expenses were mainly related to council and water rates, and insurance. The property was subsequently relisted for sale with a real estate agent. As a purchaser could not be found and no offers were received, the property was subsequently leased for a short period of a number of months. The tenant vacated the property and it was again relisted. You returned to work on a casual basis in order to pay the outgoings of the property. Following the death of your spouse, you became the sole proprietor of the property. The property remained on the market until it was recently sold. Immediately before their passing, your spouse met the maximum net asset value test; and

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152 | Income Tax Assessment Act 1997 Section 152-80 | Income Tax Assessment Act 1997 Subsection 152-80(3)

Reasons for decision: Summary: The Commissioner will exercise his discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time period. | Detailed Reasoning - Detailed reasoning: Small business concessions One of the conditions for the disposal of an asset which had been owned by a deceased person under section 152-80 is that the deceased must have been able to apply the small business concessions themselves if they had disposed of the asset immediately prior to their death. To qualify for the small business concessions, you must satisfy several conditions that are common to all the concessions. These are called the basic conditions. The basic conditions in Subdivision 152-A of the ITAA 1997 which are relevant in this case are: ● the maximum net asset value test; and ● the active asset test. Commissioner’s discretion 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 ● 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 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. Application to your situation In this case, immediately before their death, the deceased would have been able to apply the small business concessions as they satisfied the maximum net asset value test and the property was an active asset for more than 7.5 years during the test period. Although the property was briefly used to produce rental income, it is still considered an active asset. We consider that a reasonable explanation for the delay in the disposal of the property has been provided. Additionally we consider that there have been continuing efforts to dispose of the property for a number of years. We do not consider that allowing this request would cause the unsettling of others or that there is any mischief involved. Accordingly, the Commissioner will exercise his discretion under subsection 152-80(3) of the ITAA 1997 to extend the time period .