ATO Interpretative Decision
ATO ID 2010/106
Income Tax
Small business concessions: connected entities - 'control' of an unadministered deceased estateFOI status: may be released
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are two unadministered deceased estates connected with each other under subsection 328-125(1) of the Income Tax Assessment Act 1997 (ITAA 1997) because they have the same executor or beneficiaries?
Decision
No. The two unadministered deceased estates are not connected with each other under subsection 328-125(1) of the ITAA 1997 because they have the same executor or beneficiaries.
Facts
Two unadministered deceased estates carry on business in partnership. The estates have the same executor and some of the same beneficiaries.
One of the estates disposed of an asset it used in the business but which was not a partnership asset and made a capital gain. The estate is determining whether it qualifies for the small business capital gains tax (CGT) concessions in Division 152 of the ITAA 1997, and in doing so it must determine whether it satisfies the $6 million maximum net asset value test. As part of considering that test, the estate must determine whether the other estate is connected with it such that the other estate's assets are included in its net asset test.
Reasons for Decision
Under subsection 328-125(1) of the ITAA 1997, an entity is 'connected with' another entity if either entity controls the other entity in the way described in section 328-125 of the ITAA 1997 or both entities are controlled in that way by the same third entity.
An entity 'controls' another entity if it, its affiliates, or it together with its affiliates owns, or has the right to acquire the ownership of, interests in the other entity that carry between them the right to receive at least 40% of any distribution of income or capital by the other entity (paragraph 328-125(2)(a) of the ITAA 1997).
A beneficiary of an unadministered deceased estate does not own, or have the right to acquire ownership of, interests in the unadministered estate which carry rights to receive any distributions of income or capital. The beneficiary therefore does not control (and hence is not connected with) the estate under paragraph 328-125(2)(a) of the ITAA 1997.
The executor of an unadministered deceased estate also does not own, or have the right to acquire ownership of, interests which carry rights to receive distributions of income or capital. The executor therefore also does not control (and hence is not connected with) the estate under paragraph 328-125(2)(a) of the ITAA 1997.
As such, there is no entity that controls an unadministered deceased estate under paragraph 328-125(2)(a) of the ITAA 1997.
Therefore, although the two unadministered deceased estates have the same executor and beneficiaries, there is no entity that controls both estates and accordingly the estates are not connected with each other under subsection 328-125(1) of the ITAA 1997.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 19 December 2014 | Reasons for Decision | Amendments to ensure that the test is based on legal ownership of an interest in an entity, rather than who benefits from the interest due to amendments by No. 119 of 2013, s 3 and Sch 1 item 7 |
Year of income: Year ended 30 June 2010
Legislative References:
Income Tax Assessment Act 1997
Division 152
subsection 328-125(1)
paragraph 328-125(2)(a)
Related Public Rulings (including Determinations)
Taxation Determination TD 2006/68
ATO ID 2005/43
Keywords
Basic conditions for relief
Capital gains tax
CGT small business relief
CGT deceased estates
Connected entity
Date reviewed: 13 February 2019
ISSN: 1445 - 2782
| Date: | Version: | |
| 20 April 2010 | Original statement | |
| You are here | 19 December 2014 | Updated statement |
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