Private ruling: Commissioner's discretion - deceased estates
Date of advice: 27 March 2024
Published: 27 May 2024
Ruling period: Year ended 30 June 20XX
Date scheme commenced: DD MM 20XX

Ruling: Q1: Will the Commissioner allow an extension of time in accordance with subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to reduce or disregard capital gains relating to post-CGT assets? | A1: Yes.

Relevant facts and circumstances: The deceased passed away on DD MM 20XX. The deceased owned farmland which he used to carry on his business. He operated the business through various partnerships formed with family members over the years. At the time of his death, he owned the following assets related to his business: • 25% interest in Property 1, acquired in 19XX (pre-CGT) • 25% interest in Property 2, acquired DD MM 20XX • another 25% interest in Property 1, acquired DD MM 20XX • another 25% interest in Property 2, acquired DD MM 20XX The deceased's child also owned interests in the same farmland. The deceased and his child operated in business together since 19XX through several different partnerships. At the time of the deceased's death, he and his child owned the farmland (Property 1 and Property 2) as tenants in common in equal shares. Under the deceased's will, his share in the farmland was to be transferred to his other children. Shortly after probate was granted, the deceased's child made a family provision claim that the deceased's interest in the farmland be transferred to himself. A lengthy litigation followed which went on for several years and through multiple courts, until being finalised in MM 20XX. As a potential outcome of the family provision claim was that the deceased's share in the farmland be transferred to the deceased's child, the farmland was not able to be sold until the outcome of the litigation was final. All other property of the deceased's estate was dealt with expediently once probate was granted. Toward the end of the court proceedings, an agreement was made between the parties to sell the property, with the support of the court. The farmland was sold on DD MM 20XX to a third party. The court handed down its decision on DD MM 20XX and settlement of the sale was effected on DD MM 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-80 | Income Tax Assessment Act 1997 paragraph 152-80(1)(d) | Income Tax Assessment Act 1997 subsection 152-80(3)

Reasons for decision: Summary: Section 152-80 of the ITAA 1997 provides that where CGT event happens to an asset or interest within 2 years of individual's death, the capital gain can be reduced or disregarded in the same way that the deceased individual would have been entitled to if a CGT event had happened in relation to the CGT asset immediately before their death. Under paragraph 152-80(1)(d) of the ITAA 1997, a CGT event must happen in relation to the CGT asset within 2 years of the individual's death. The Commissioner has the discretion to extend the time limit under subsection 152-80(3) of the ITAA 1997. In this case, the deceased individual passed away on DD MM 20XX. The time limit expired on DD MM 20XX, being 2 years after the death of the deceased. As the relevant assets were not sold until DD MM 20XX, the estate will only be able to reduce or disregard the capital gain if the Commissioner grants an extension of the time limit. The Commissioner has considered the following factors in determining whether to exercise the discretion to extend the time limit set out in paragraph 152-80(1)(d) of the ITAA 1997: • 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 grant the extension; • whether it would be prejudicial to the Commissioner to grant further time. The absence of prejudice is not enough to justify the granting of the extension; • whether the decision will unsettle people other than the Commissioner or unsettle established practices; • whether it is fair to people in similar positions and the wider public interest; • whether there is any mischief involved; and • the consequences of granting the extension. The prolonged delay in disposing of the deceased's CGT asset was through no fault of the estate. The court proceedings meant that the estate was not able to sell the property until a judgment was reached. The eventual sale was made quickly by the estate as soon as the property was able to be sold. This shows that the estate intended to sell the assets and wind up the estate as soon as possible and did so once they had the opportunity to. The circumstances of the case and explanation for the delay support the case for an extension of the time limit. There is an acceptable explanation for the extension requested and it is fair and equitable in the circumstances to grant the extension. There appears to be no prejudice to the Commissioner. The decision to grant the extension is fair to those in similar positions and the wider public interest. There does not appear to be any mischief involved and no ill consequences resulting from the extension being granted. Having considered these factors and your circumstances, the Commissioner will exercise the discretion in subsection 152-80(3) to extend the time limit to DD MM 20XX to reduce or disregard capital gains relating to the post-CGT assets. We have limited our ruling to the question raised in your application being whether an extension of the time limit will be granted. You have advised that the deceased would have been eligible to apply the small business concessions if they had disposed of the property immediately before their death. The private ruling on whether an extension of the time limit will be granted was issued on the basis that the Commissioner did not consider the deceased's eligibility for the small business concessions.