Private ruling: CGT - Commissioner's discretion to grant extension of time
Date of advice: 12 September 2022
Published: December 2022
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: In the year ending 30 June 20YY

Ruling: Q1: Will the Commissioner, pursuant to subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997), grant an extension of time until 30 June 20YY to dispose of the land retained by the executors of the estate of deceased? | A1: Yes

Relevant facts and circumstances: 1. The deceased owned and operated a primary production business in Australia. 2. The land referred to in this ruling (the land) is the interests in the parcels of land known XXX that were acquired by the deceased post 19 September 1985 which were subject to a Contract of Sale dated 20YY and settled 20YY. 3. Excluded from this ruling is any interest in the land that was acquired by the deceased before 20 September 1985. 4. The deceased date of death was on DD MM YYYY. 5. The executors of the deceased's estate are XXX XXXX (the executors). 6. One executor manages the financial and administration aspects of the business and the other resides on the property and manages the day-to-day operations of the business. 7. Following the death of the deceased, the executors were required to manage significant government body investigations. Due to these investigations, conflict over management of the business, complexity with the administration of the estate and COVID-19 related delays, the finalisation of the estate's administration was delayed. 8. You have provided the following timeline and information about the causes of the delay to the finalisation of the estate's administration: • MM YY to MM YY - the executors' time was consumed with an extensive government body investigation and dealing with associated requirements. • MM YY to MM YY - government body investigation. • The government body investigations placed significant strain on the executor's who were still grieving the death of XXXX. You have stated that the stress negatively impacted both their working relationship and the management of the affairs of the estate, including conflict with employees, disagreement on the future of the business operations and the varying capabilities of the executors to understand the different business requirements. • MM YY - work towards the application for probate commenced with initial searches of titles of the land and valuation, reconstruction of share portfolio data and gathering of other asset information owned by the deceased. The land data was complex; comprising of many titles/allotments spread over numerous clusters of land acquired over decades. • MM YY - solicitors commenced the process of locating missing titles and transferring old chain format titles to new titles. • 20YY income year - Council rates notices contained inadequate or incomplete data in relation to the title details and land area to assist in completing the reconstruction of the estate's land title database. • DD MM YYYY - probate granted. • Throughout YY and YY business operations were challenging for the executors through a very dry season. • From March 20YY and throughout the 20YY calendar year, the COVID-19 pandemic impacted the speed in which the administration of the estate could be finalised. In particular: o Lockdown and travel restrictions impacting access to information stored on the property. o The timeframes for much of the work undertaken by external consultants, including lawyers, accountants, council and other Government officials etc were impacted by long periods of having to work from home. o Significant delays in the completion of valuation reports due to the inability of valuers to travel and work from home orders. o The general negative impact of introduction of numerous COVID-19 policies and procedures relevant to the productive management of the business and its assets. • Throughout the YY income year, significant time was spent on the reconstruction of data to ascertain accurate cost base details for the numerous titles of land identified, including a search for original records and tracing exercises undertaken as well as reconstruction of share cost base details using records held on site which were difficult to access during lockdown periods. • By the end of YY sufficient data had been accumulated for the executors to commence the process of negotiating the allocation of land from the estate. • MM YY - draft Distribution Plans went through a lengthy and complex negotiation phase culminating with a legal process. • DD MM YYYY - Deed of XXXX Arrangement signed. • MM YY - sale of land was settled. 9. You have submitted that the executors acted as expeditiously as possible to administer the affairs of the estate to put themselves in a position to dispose of the relevant estate assets as soon as they were in a legal position to enter into a contract of sale for the land subject to this application.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-80 | Income Tax Assessment Act 1997 subsection 152-80(3) Further issues for you to consider | The private ruling has been limited to the question requested upon application which is whether the Commissioner can exercise discretion under subsection 152-80(3) of the ITAA 1997 to allow an extension of the two-year period. Therefore, the Commissioner has not considered whether the deceased was in fact entitled to the small business CGT concessions. Further information on 'small business CGT concessions' can be found on our website by searching QC 22655.

Reasons for decision: Summary: Considering your circumstances, the Commissioner will exercise the discretion under subsection 152-80(3) of the ITAA 1997 and allow an extension of time beyond two years to 30 June 20YY. | Detailed Reasoning - Detailed reasoning: Section 152-80 of the Income Taxation Assessment Act 1997 (ITAA 1997) allows either the legal personal representative or beneficiary of an estate to apply the capital gains tax (CGT) small business concessions in respect of the sale of the deceased's asset in certain circumstances. Specifically, the following conditions must be met: • a CGT asset forms part of the estate of a deceased individual or was owned by a joint tenant who dies, • the asset transfers to the legal personal representative or passes to a beneficiary, • the deceased would have been entitled to reduce or disregard a capital gain from a CGT event under the small business concessions, immediately before their death, and • a CGT event occurred within two years of the deceased's death, with the exception of subsection 152-80(3) of the ITAA 1997, where the Commissioner can allow an extension of time. The two-year time limit prescribed may be extended by the Commissioner in accordance with subsection 152-80(3) of the ITAA 1997 in certain circumstances. In determining whether a longer period will be allowed, the Commissioner will consider a range of factors such as: • whether there is evidence of an acceptable explanation for the period of extension requested and whether it would be fair and equitable in the circumstances to provide such an extension, • whether there is any prejudice to the Commissioner if the additional time is allowed, however the mere absence of prejudice is not enough to justify the granting of an extension, • whether there is any unsettling of people, other than the Commissioner, or of established practices, • fairness to people in like positions and the wider public interest, • whether there is any mischief involved, and • the consequences of the decision. | Detailed Reasoning - Application to your circumstances: The land is a CGT asset which formed part of the deceased's estate. The land transferred to the beneficiaries in accordance with the deceased's will. It is assumed for the purposes of this ruling that the deceased would have been entitled to reduce or disregard a capital gain from a CGT event under the small business concessions immediately before their death. The CGT event did not occur within two years of the deceased's death and therefore, in order to reduce or disregard any capital gain from the CGT event, the discretion under subsection 152-80(3) will need to be applied. As discussed above, the Commissioner will consider a range of factors in determining whether a longer period will be allowed. You have provided evidence explaining why the period of extension has been requested including in particular that: • the executors were involved in government body investigations, • the land and estate data was particularly complex and comprised of many titles/allotments acquired over decades and through various methods, • COVID-19 travel restrictions with much of the historical records physically stored on the property delayed the collection and understanding of the estate assets as well as causing delays from external valuation reports, • council information about the land was in parts incorrect or incomplete, • business conditions were challenging through a very dry season, and • there was escalating conflict between the business managers and the executors and between the executors themselves. Allowing the additional time requested will not, in your circumstances, prejudice the Commissioner, nor will it lead to an unsettling of people, other than the Commissioner, or of established practices, nor is it unfair to people in like positions or detrimental to the wider public interest. There is no evidence of any mischief involved and allowing the extension will enable you to apply the small business CGT concessions to reduce or disregard the capital gain disregard the capital gain made from the sale of the land in the way that you have submitted that the deceased would have been able to do if the CGT assets had been sold immediately before their death. Considering your circumstances, the Commissioner will exercise the discretion under subsection 152-80(3) of the ITAA 1997 and allow an extension of time beyond two years to 30 June 20YY.