Private ruling: Capital gains tax - Small business concessions - Deceased estate - Commissioner's discretion
Date of advice: 28 November 2016
Published: May 2017
Ruling period: 201X-1X income year
Date scheme commenced: 1 July 201X

Ruling: Q1: Will the Commissioner exercise the discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit until 31 October 2016 to allow the small business capital gains tax (CGT) concessions to be applied? | A1: Yes.

Relevant facts and circumstances: This private ruling concerns certain farming properties. The deceased inherited this farmland from a relative, who died about XX years ago (and after the commencement of the capital gains provisions). Shortly afterward, the deceased entered into a farming partnership with another relative, to operate a primary production business on the inherited farm land. The farm land was used exclusively by the farming partnership for more than XX years. The partnership was dissolved some XX years later. About X years ago, the deceased passed away. The Estate was left as follows: ● Sums of money to certain named beneficiaries, and ● The balance of the Estate including farm land to the relative mentioned above (the primary beneficiary) A dispute subsequently arose between the beneficiaries in respect to the terms of the Will. A loan balance owing by the primary beneficiary was also disputed by the beneficiaries. The executors were the primary beneficiary and one of the other beneficiaries. The executors initially could not reach agreement as to the amount of the debt owed by the primary beneficiary. This dispute delayed the application for probate which was finally applied for nearly X years after the deceased passed away. Probate was granted shortly afterward. Although probate was granted, the beneficiaries of the Estate remained in dispute and negotiations between the plaintiffs (the other beneficiaries) and the defendant (the primary beneficiary) were not finally resolved until the matter went to Court Arbitration where settlement was finally reached about XX months later to vary the Will to the satisfaction of all parties by Supreme Court Order. It was agreed that the farm land would be immediately put up for sale and sold as soon as possible by the executors of the Estate. To this end, an auction was held recently and the properties sold. As at the date of death of the deceased, the deceased met the conditions to benefit from the small business relief under Division 152 of the ITAA 1997 as the farm land owned by the deceased had been an active business asset for at least XX years during the period of ownership by the deceased and the total assets of the deceased at the date of death were less than $X,000,000.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 152.

Reasons for decision: Summary: The Commissioner will exercise the discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the time limit until DD MM YY to allow the small business capital gains tax (CGT) concessions to be applied. | Detailed Reasoning - Detailed reasoning: Section 152-80 of the ITAA 1997 allows the legal personal representative of an estate 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 ● 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 in relation to the asset 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 farming property has been provided being the legal matters mentioned. The properties have been sold promptly once the legal matters had progressed to a point where these sales could be effected. 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 the discretion under subsection 152-80(3) of the ITAA 1997 to extend the time period to 31 October 2016 .