Private ruling: Capital gains tax - small business concessions - extension of time
Date of advice: 26 November 2018
Published: February 2019
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

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) concessions to be applied? | A1: Yes.


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

Reasons for decision: Summary: A CGT asset passes to a beneficiary in the estate of a deceased person if the beneficiary becomes the owner of the asset under the will of the deceased person or in one of the other ways outlined in section 128- 20 of the ITAA 1997. It is considered that a CGT asset passes to a beneficiary of a deceased estate when the beneficiary becomes absolutely entitled to the asset as against the estate's trustee. Because the administration of the estate in this case is complete, the executor is now acting in the capacity of trustee. The beneficiary is absolutely entitled to the assets of the business as against the trustee, because the beneficiary has a vested, indefeasible and absolute interest in each asset and is able to direct how each asset be dealt with. Therefore, the assets of the deceased's business have passed to the beneficiary which means that anything done by the trustee, including the carrying on of the business and its sale, is taken to have been done by the beneficiary. Accordingly any capital gain made on the sale of the business will be taken to have been made by the beneficiary, the beneficiary is entitled to choose the small business retirement exemption in Subdivision 152-D of the ITAA 1997 in respect of the gain, provided the other conditions for the exemption are satisfied. 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. In this case, we consider that a reasonable explanation for the delay in the disposal of the land has been provided. We consider that continuing efforts were made to dispose of the land. 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 in relation to the sale of property 2 under subsection 152-80(3) of the ITAA 1997 to extend the time. | Detailed Reasoning - Note.: Pre-CGT interest in the land The interest in property 1 that was acquired by the deceased prior to 20 September 1985 would not have satisfied the basic conditions for the small business concessions. This is because if the deceased had disposed of this interest just prior to their death the sale would not have resulted in any capital gain. Therefore you are unable to apply the small business concessions to any capital gain made on the disposal of this interest. Under Division 128 of the ITAA 1997 the cost base of the pre-CGT interest in your hands will be the market value of the property on the deceased’s date of death.

Relevant facts: The deceased passed away in 20XX (the deceased). | The deceased acquired prior to 20 September 1985 farming land (Property 1). | The deceased acquired after 20 September 1985 farming land (Property 2). | The deceased conducted a primary production business on property 1 and property 2 (joint properties). | If the deceased had disposed of property 2 immediately prior to their death, they would have been eligible to claim the small business CGT concessions in relation to the land. | Probate was granted in 20XX. | You engaged legal representation in 20XX in relation to the administration of the estate. | There was significant dispute between you and your sibling as to the various titles to the real property that formed part of the estate of the deceased. The dispute caused lengthy delays in finalising the estate. | You entered into a deed of settlement in relation to your dispute in 20XX. | The deed was subsequently challenged and ultimately set aside by the relevant Court in 20XX. | Continuing negotiations in relation to the legal costs of the legal proceedings further delayed the sale of the land. | Settlement occurred in 20XX.