Private ruling: capital gains tax
Published: October 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

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 estate to access the small business capital gains tax (CGT) concessions? | A1: Yes.

Relevant facts and circumstances: The deceased had an ownership interest in a farming property. The deceased used the property in the course of carrying on a primary production business. The deceased would have been entitled to apply the small business CGT concessions if they had sold the property just prior to their death. The property was sold in the relevant financial year, more than two years after the deceased passed away. A portion of the property was owned by the family of the late sibling of the deceased. This family is located in overseas. The executors had to contact the family to get their instructions for the disposal of the asset. This action was delayed as the deeds for the property had to be obtained. Also, the deceased's late relative's estate had to be finalised. It took the executors some time to determine the assets held by the deceased. The family member responsible for the late relatives' estate was required to obtain a reseal of the grant of Administration which was completed by an attorney. The Certificate of Title for an access licence that accompanied the property was missing and an application for a replacement had to be arranged through Land and Property Information. This was complicated by the fact that the co-owner lived overseas and was required to give evidence relating to the missing licence. The proportions of ownership recorded on the licence that was issued were incorrect. The licence had to be corrected which took approximately X months. The large size and rural zoning of the property meant that it took several months to find a buyer willing to purchase the property.

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. If a CGT asset is owned by joint tenants and one of them dies, the survivor is taken to have acquired the deceased individual's interest in the asset on the day they died under subsection 128-50(2) of the ITAA 1997 . In some instances, a taxpayer can reduce the capital gain made from a CGT event by applying the small business CGT concessions. Section 152-80 of the ITAA 1997 potentially extends the availability of the small business CGT concessions to an asset held by a legal personal representative or beneficiary of a deceased estate, to the extent that the deceased would have been entitled to the concessions, if a CGT event happens to the asset within two years of the death. 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 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 this case, when the deceased passed away the property passed to the executors of the estate. As the deceased would have been able to apply the small business concessions to their interest in the land, had they disposed of this land immediately prior to their death, the beneficiaries would also have access to the concessions had they disposed of the land within two years of the deceased's death. You will only be able to apply the small business CGT concessions if the Commissioner extends the time period in which you can dispose of the property and still be able to apply the concessions. 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 circumstances: 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. Allowing an extension is not prejudicial to the Commissioner in this case nor is it unfair to other people in similar positions. The period of extension has a reasonable explanation given the circumstances and by allowing the extension will enable the estate to apply the small business concessions as would have been able to be applied by the deceased just prior to their death.