Private ruling: Small Business Concessions - CGT exemption - extension of the two year period
Date of advice: 24 April 2020
Published: June 2020
Ruling period: Year ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the Commissioner exercise his discretion under section 152-80(3) of the Income Tax Assessment Act 1997 (ITAA 1997) to extend the two year period following the death of the deceased until settlement of the farming property on XX XXXX 2019? | A1: No.

Relevant facts and circumstances: You and your now deceased spouse purchased a farming property in the 90's as joint tenants. The property was rented to an associated entity from day 1. Both you and your spouse were "Connected Entities" to "The associated entity". The annual aggregate turnover was less than $2million. Your spouse died in the 20XX income year. Your spouse's 50% Ownership Interest as a "Joint Tennant" passed to you, on your spouse's death. The farm was sold in 20XX. From the purchase date until the sale date, business farming operations have always been conducted on the farming lands by the associated entity. Your initial 50% Interest passes the 15 year ownership CGT exemption test. Your spouse's 50% also passes the 15 year ownership CGT exemption test. The reasons for the delay in selling the property are as follows: · Prior to your spouse's illness and subsequent death in XXXX, negotiations with local real estate agents, had commenced with a view of procuring a purchaser for your farming lands. · At that time, and in the period subsequent to your spouse's death, discussions with local families in relation to the farm sale took place. · Interest was shown by one particular farming operation but they were not willing to pay the asking price. · Over a period of time the field narrowed to one particular farming operation who was looking like paying the asking price. · You had considerable "Water Rights" attached to the Property. · The prospective purchaser was interested in the water rights and needed assurance that the rights would remain with the property. This all took time for them to find this out from the relevant authorities. · The finalisation of the arrangement involved numerous long protracted discussions and negotiation between the various parties which took a huge amount of time before an agreement was reached and the sale occurred substantially below the asking price.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 152-80(3)

Reasons for decision: Summary: Under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997), the small business concessions are available to reduce a capital gain providing certain conditions are satisfied. The legal personal representative (LPR) or beneficiaries are entitled under section 152-80 of the ITAA 1997 to reduce or disregard a capital gain under Division 152 of the ITAA 1997 in the same way as the individual would have been entitled to reduce or disregard it if certain conditions set out in subsection 152-80(1) of the ITAA 1997 are met. These conditions are:- · that the CGT asset forms part of the estate of a deceased individual · the asset devolves to the individual's LPR or passes to a beneficiary of the individual · the individual would have been entitled to reduce or disregard the capital gain under Division 152 of the ITAA 1997 if a CGT event had happened in relation to the CGT asset immediately before his death, and · a CGT event happens in relation to the CGT asset within two years of the individual's death. This time limit may be extended by the Commissioner under subsection 152-80(3) of the ITAA 1997. The factors that the Commissioner takes into consideration are: · 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 your case the property was not sold within the 2 year time period and took XX years to sell. You contend that due to the property being farming property and the asking price of the property being high this is what predominantly impacted the sale. It took time to find a purchaser and when a prospective purchaser was found they wanted to ensure that the water rights associated with the property remained with the property. This all took time. The Commissioner is not satisfied that the delay in selling the farming property was out of your control but rather took time to sell due to you wanting to get the best price possible. In addition, while you have given reasons that affected the delay in selling the property, the Commissioner does not know the time line in which these events occurred over the total 5 ½ years. The Commissioner does not know how long each event took and the circumstances around each event and interaction in relation to the sale of the property. The Commissioner will therefore not exercise the discretion under subsection 152-80(3) of the ITAA 1997 to extend the 2 year time period to XX XXXX 2019.