Private ruling: Deceased estate - 2 year discretion
Date of advice: 8 October 2018
Published: December 2018
Ruling period: Year ended 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 (including the 15 year exemption) to be applied in relation to the sale of the property? | A1: No

Relevant facts and circumstances: You are the Trustee for the Estate of X. The property which is the subject of this ruling comprises a number of hectares. This was acquired by Z prior to 20 September 1985. Z died. The whole of the estate was given to their spouse, X. X died, with the property being transferred to Y as their executor and trustee. Y is one of the beneficiaries named in X’s will. Y used the property for primary production. The property had specified market values. There had been discussions years after the death of X to sell the property. A number of the beneficiaries from X’s estate lodged a caveat on the property. Nevertheless, the caveat was later withdrawn because it could not be maintained. Y did not sell the property. Y died. From Y’s last will and testament, they appointed their partner, W was their executor and trustee. W is the sole beneficiary of their estate. By chain of representation, W is also the executor of X’s estate. From Y’s death, X’s beneficiaries decided to wait to allow for W to grieve. Later both parties had been discussing the sale of the property and they received land valuations. X’s property was transferred to W as executor of the will of Y. X’s beneficiaries had a number of dealings with Y’s executor about negotiating their entitlements. The solicitors for X’s beneficiaries sent a letter requesting that the property be sold to maximise return for all beneficiaries, that steps should be taken to put in place a sale program that will maximise the value of the property after an anticipated re-zoning change to urban or otherwise to list the property for public auction, and requesting advice as to whether Y paid and will pay rent to X’s estate. The executor of the estate of Y entered into a contract to sell the property. The terms of the contract provides for payment by instalments over a number of years. The property was settled and sold for a specified sum. A barrister was later engaged by the solicitors acting on behalf of the executor of Y’s estate to give advice on an issue that arises from the terms of X's will. This occurred more than one year after the sale of the property.

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

Reasons for decision: Summary: The Commissioner will not exercise his discretion under subsection 152-80(3) of the ITAA 1997 to extend the two year time limit. | Detailed Reasoning - Detailed reasoning: 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 two 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. | Detailed Reasoning - Application to your situation: In this case, you submitted that there has been considerable complexity in respect of the winding up of the Estates of both the late X and Y. This is partly caused by the wording of X’s will. You submitted that had X’s will been draft in a clearer manner, or in a way that provided Y with actual beneficial ownership of the Estate Property, this could have provided Y’s estate with the ability to access the Small Business CGT Concessions following their death, based on their continued use of the property in a primary production business following the death of X. Additionally, we accept the estate would not have been able to dispose of the property within the first # of years following X’s death due to circumstances outside of the trustee’s control. Although discussions were occurring since late 20xx in relation to the sale of the property, it was not settled until 20xx. It is considered that the suggested sales program aimed at maximising the value of the property after being rezoned as urban land approximately 20xx caused further delay. While we appreciate the goal of maximising results for the property, the decision to hold the land for the purpose of resale after rezoning was a choice made and well within the control of the estate as directed by the beneficiaries. Probate for the administration of Y’s estate was granted on 20xx. It is arguable that the issue on ascertaining beneficial ownership of X’s property was clarified by Y’s disposition from this point in time. Y’s estate, among other things, only consisted of % and not the entirety of the property in question. Further, we note from the barrister’s memorandum of advice in 20xx that this advice was provided after the sale of the property and did not contribute to any delay. Settlement on the disposal of the property did not occur until a significant number of years had passed after X’s date of death, and a number of years after Y had failed to deal with the property as directed in X’s will. Additionally, it is considered that the property was subsequently held in anticipation of rezoning, an action within the control of the estate. Accordingly, the Commissioner will not exercise his discretion under subsection 152-80(3) of the ITAA 1997 to extend the two year time period. 15 year exemption As the Commissioner will not exercise his discretion to extend the two year period, there is no need to consider the eligibility and application of the 15 year exemption in subdivision 152-B of the ITAA 1997.