Private ruling: CGT - deceased estates
Date of advice: 27 October 2025
Published: 15 December 2025
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the real property located at a specified address an active asset under subsection 152-40(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: Will the Commissioner exercise his discretion under subsection 152-80(3) of the ITAA 1997 to extend the 2-year time limit in paragraph 152-80(1)(d) of the ITAA 1997 until 30 June 20XX? | A2: Yes.

Relevant facts and circumstances: Background Summary - Estate of Person A Person B, Person C, Person D and Person E act as the legal personal representatives for the estate of Person A (Estate). Person A passed away on a specified date. Person B, Person C, Person D and Person E are beneficiaries of the Estate. The Estate remains partially administered. Assets of the Estate Prior to death, Person A held various assets, including a real property at a specified address (Real Property) and was majority shareholder in Company A. Person A inherited the Real Property and shares in Company A at a specified date. Company A aggregated turnover for the financial year ending 30 June 20XX and 30 June 20XX was less than $2m. Business Operations Person A owned the majority of the share capital in Company A, which operates a storage business on the Real Property. The business has been in continuous operation for more than 15 years. Following Person A's death, Company A has continued to operate the business on the Real Property. There is no formal agreement between Company A and Person A or with the legal personal representatives regarding the use of the Real Property. Company A has not paid rent or other consideration for its use of the land but does cover outgoings such as council rates and land tax. Company A enters into standard Licence Agreements with its customers. You have provided a copy of the Licence Agreement which outlines various provisions between Company A and its customers. Customers typically access their shed during business hours. Access is restricted outside business hours, with the front gate locked during these hours. Security is provided via locked gates and different onsite CCTV cameras. Use of the sheds is strictly limited to storage purposes. Administration of the Estate Administration of the Estate has been significantly delayed due to: • The requirement for unanimous decisions among the executors. • The complexity of Person A's estate. • Delays in accessing and closing Person A's bank accounts. Disagreements among the executors (who are also beneficiaries) further delayed progress: • Disagreements concerning whether to dispose or retain certain CGT assets • Disputes arose whether to continue or dispose of the business activity. Between a specified time period, disputes escalated, resulting in: • Threats to engage mediation or court action to resolve certain disputes. • Discussions occurred where some parties were considering buying out certain person's interest in certain CGT assets. These differing objectives among the executors created a real risk of formal dispute, delaying administration until a specified date when agreement was finally reached on the sale process. The health issues of at least one person contributed towards further delays in decision-making regarding the Real Property.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 152-35 | Income Tax Assessment Act 1997 subsection 152-35(2) | Income Tax Assessment Act 1997 subsection 152-40(1) | Income Tax Assessment Act 1997 paragraph 152-40(4)(e) | 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: Yes, Person A owned the Real Property for less than 15 years. During this period, the Real Property was an active asset for at least half the ownership period. Company A carried on a business activity that used the CGT asset and derived storage fees or licence fees from the storage activity. Company A is connected with Person A because Person A held majority share ownership in the company. The main use of the Real Property is not to derive rental income therefore the exclusion under paragraph 152-40(4)(e) does not apply. The Real Property satisfies the active asset test under section 152-40(1) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: To qualify for the Small Business Concessions, you must meet the basic conditions as outlined in section 152-10 of the ITAA 1997. Paragraph 152-10(1)(d) of ITAA 1997 requires the CGT asset to satisfy the active asset test. | Detailed Reasoning - Meaning of active asset: Subsection 152-40(1) of the ITAA 1997 defines an active asset as follows: A CGT asset is an active asset at a time if, at that time: (a) you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a business that is carried on (whether alone or in partnership) by: (i) you; or (ii) your affiliate; or (iii) another entity that is connected with you; or (b) if the asset is an intangible asset - you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you. Subsection 152-40(4) of the ITAA 1997 provides when a CGT asset cannot be an active asset. Paragraph 152-40(4)(e) of the ITAA 1997 provides that an asset whose main use is to derive rent is specifically excluded from being an active asset. | Detailed Reasoning - Active asset test: A CGT asset is an active asset if the CGT asset meets the active asset test. Section 152-35 of ITAA 1997 outlines a CGT asset owner satisfies the active asset test if: (a) the asset owner has owned the asset for 15 years or less and the asset was an active asset of the asset owner for a total of at least half of the asset ownership period or (b) the asset owner has owned the asset for more than 15 years and the asset was an active asset of the asset owner for a total of at least 7 ½ years during the asset ownership period Section 152-35(2) of the ITAA 1997 defines the asset ownership period: (a) begins when the asset owner acquired the asset; and (b) ends at the earlier of: (i) the CGT event; and (ii) if the relevant business ceased to be carried on in the 12 months before that time or any longer period that the Commissioner allows. In this case, Person A owned the Real Property for a period of less than 15 years. During the asset ownership period the Real Property was an active asset for at least half of the period. | Detailed Reasoning - Meaning of connected entity: Under section 328-125 of ITAA 1997, an entity is considered to be connected with another entity if either entity (together with its affiliates) controls the other, or if both entities are controlled by the same third entity (including that third entity's affiliates). Subsection 328-125(1) outlines the general rule for determining connected entities. Specifically: • Paragraph (a) provides that an entity is connected with another if it controls the other in the manner described in the section. • Paragraph (b) provides that two entities are connected if they are both controlled by the same third entity. Subsection 328-125(2) further clarifies that an entity (other than a discretionary trust) is controlled by another entity if the controlling entity (together with its affiliates) holds, or has the right to acquire, interests in the target entity that carry at least 40% of: • The right to receive distributions of income or capital; or • Voting power, in the case of a company. In this case, Company A was a connected entity of Person A during the period in which Person A held the Real Property, as Person A owned the majority of shares in Company A. This satisfies the control test under subsection 328-125(2). | Detailed Reasoning - Main use to derive rent: Taxation Determination TD 2006/78 examines the circumstances where premises used in a business of providing accommodation for reward satisfy the active asset test. Whether an asset's main use is to derive rent will depend on the particular circumstances of each case. In paragraph 22, the term 'rent' has been described as follows: • the amount payable by a tenant to a landlord for the use of the leased premises; • a tenant's periodical payment to an owner or landlord for the use of land or premises; and • recompense paid by the tenant to the landlord for the exclusive possession of corporeal hereditaments. Whether an occupier is considered a lessee depends largely on whether they have exclusive possession of the premises. If exclusive possession is granted under a lease, payments are likely rent and the premises may not be an active asset. If the arrangement only allows limited use without exclusive possession, the payments are unlikely to be rent. | Detailed Reasoning - Application to your circumstances: Person A owned the real property, which was used by Company A in the course of operating its storage business. During the period of ownership, Company A was a connected entity of Person A, as Person A held the majority of its shares. The primary use of the property during this time was not to generate rental income, but rather to derive storage fees from Company A's customers. The agreements entered into with customers do not exhibit the characteristics of a lease. Specifically, Company A granted customers the right to use designated areas for storage purposes only, without conferring exclusive possession-an essential feature of a lease arrangement. Therefore, Company A derived storage fees income and not rental income from its business activity. The Real Property's main use was to carry on the storage activity. Its main use was not to derive rent and as a result the exclusion under paragraph 152-40(4)(e) does not apply. The Real Property satisfies the active asset test under section 152-40(1) of ITAA 1997. | Detailed Reasoning - Question 2: Will the Commissioner exercise his discretion under subsection 152-80(3) of the ITAA 1997 to extend the 2-year time limit in paragraph 152-80(1)(d) of the ITAA 1997 until 30 June 2026? | Summary: Yes, having considered all relevant factors, the Commissioner will exercise discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 to extend the time limit for disposal of the Real Property to 30 June 2026. | Detailed Reasoning - Detailed reasoning: The rules for dealing with a deceased individual's property and the small business concessions are set out in section 152-80 of the ITAA 1997. Where a 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 the CGT event had happened immediately before their death. A CGT event must happen in relation to the CGT asset within 2 years of the individual's death under paragraph 152-80(1)(d) of the ITAA 1997. The Commissioner has the discretion to extend the 2-year time limit under subsection 152-80(3) of the ITAA 1997. The Commissioner has considered the following factors in determining whether to exercise the discretion to extend the 2-year time limit: • 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. | Detailed Reasoning - Application to your circumstance: In your case, the deceased, Person A, passed away on a specified date. The two-year time limit for disposing of the relevant asset expired on a specified date. As the Real Property was not disposed of within this period, the capital gain can only be reduced or disregarded if the Commissioner exercises discretion to extend the time limit. There was a genuine prospect of dispute in the administration of Person A's estate due to disagreements between certain parties. The estate is complex yet decisions could not be unanimously made whether to retain or dispose of certain CGT assets including whether to continue the business activity. Personal issues also contributed to the delays in administrating the estate. Given these circumstances, there is a reasonable and acceptable explanation for the delay in disposing of the asset. Granting an extension is fair and equitable, both to the parties involved and to others in similar situations. There is no evidence of misconduct or adverse consequences arising from the delay. The medical treatment and the need for unanimous decisions were unforeseen and beyond the control of the executors. Having considered all relevant factors, the Commissioner will exercise discretion under subsection 152-80(3) of the Income Tax Assessment Act 1997 to extend the time limit for disposal of the Real Property to 30 June 20XX.