Private ruling: CGT - deceased estate - small business concessions
Date of advice: 23 December 2015
Published: March 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
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) and allow extra time for the trustee of the deceased estate to obtain the small business capital gains tax (CGT) concessions? | A1: Yes.

Relevant facts and circumstances: The deceased purchased a property with their spouse prior to 1985. The property was used in the course of carrying on a farming business. The deceased's spouse passed away after 20 September 1985 and the deceased became the sole owner of the property. The deceased continued to operating a farming business up until their death. The deceased would have been entitled to apply the small business 15 year exemption just prior to their death. A contract was signed for the sale of a portion of the land. The contract had a number of special conditions including changes to the internal boundary and other zoning requirements. The contract was terminated by the buyer. The property has been on the market but the executors have not been able to find another buyer. The property is proving difficult to sell as the local council is in the process of changing the zoning in its new Shire Plan. The new Shire Plan is yet to be finalised.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 128-50(2) | 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. 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 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 asset has passed to the legal personal representative and the deceased would have been able to apply the small business concessions to the property just prior to their death. In determining if the Commissioner should use his discretion to allow an extension of time the following will be considered: • 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, a contract of sale was executed within 2 years of the deceased's date of death. This contract was terminated due to issues with local zoning conditions. The local council continues to be in the process of changing the zoning in the area. 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.