ATO Interpretative Decision
ATO ID 2001/730
Income Tax
CGT - deceased estate - cost base of CGT asset - legal costs to determine control of the estateFOI status: may be released
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This ATOID provides you with the following level of protection:
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Do legal costs, incurred by the executor of a deceased estate to defend a claim for control of the estate, form part of the cost bases of the estate's assets pursuant to subsection 110-25(6) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Legal costs, incurred by the executor in defending a claim by a member of the deceased's family to control the estate, do form part of the cost bases of the estate's assets pursuant to subsection 110-25(6) of the ITAA 1997.
Facts
The taxpayer is the executor of a deceased estate. The taxpayer incurred legal costs in defending a claim by a member of the deceased's family under the relevant state legislation, for control of the estate.
The taxpayer successfully defended the claim. The court found, under the relevant state legislation, that the family member was not entitled to have control of the estate.
The Supreme Court granted probate in solemn form and ordered that the matter be submitted to the registrar for the completion of the grant of probate.
Reasons for Decision
Capital expenditure incurred to establish, preserve or defend title to or a right over an asset of a taxpayer forms part of the fifth element of the cost base of the asset of the taxpayer under subsection 110-25(6) of the ITAA 1997.
The Australian Capital Gains Tax Planner : ITAA 1997 database, CCH Australia Limited at paragraph 30-640 notes that examples of expenditure that would fall within fifth element of the cost base include:
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- legal fees incurred by a beneficiary in taking action to establish title to inherited property
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- the costs incurred by an executor to obtain probate (IR Commrs v. Executors of Dr Robert Richards [1971] 1 All ER 785).
As stated in Cooper, GS 1992, Capital gains tax 2nd edn, Butterworths, Sydney, p. 87:
Defending the taxpayer's title or right seems to refer to action taken when the title or right is put in dispute. The most obvious example of this is where someone else lays a claim to the asset in whole or in part and institutes legal proceedings to establish that claim. Costs of the taxpayer in defending those proceedings would be costs in defending the taxpayer's title.
As the executor of the deceased estate, the taxpayer incurred this expenditure to preserve and defend the rights over the assets of the estate in defending the claim for control of the estate. Consequently, it forms part of the cost bases of the estate's assets pursuant to subsection 110-25(6) of the ITAA 1997.
This expenditure may need to be apportioned across the various assets of the estate in accordance with subsection 112-30(1A) of the ITAA 1997.
Amendment History
| Date of amendment | Part | Comment |
|---|---|---|
| 14 February 2014 | Title, Reasons for Decision, Case References, Other References | Amended for style adherence |
| Issue, Decision, Facts, Reasons for Decision | Amended for clarity | |
| Related ATO Interpretative Decisions | Amended to remove withdrawn ATO IDs and to replace with the replacing ATOID | |
| Keywords | Amended to remove irrelevant keywords |
Legislative References:
Income Tax Assessment Act 1997
Subsection 110-25(6)
Subsection 112-30(1A)
Case References:
IR Commrs v. Executors of Dr Robert Richards
[1971] 1 All ER 785
ATO ID 2001/729
ATO ID 2005/40
Other References:
Australian Capital Gains Tax Planner : ITAA 1997 database, CCH Australia Limited
Cooper, GS 1992, Capital gains tax, 2nd edn, Butterworths, Sydney
Keywords
Capital gains tax
CGT assets
CGT cost base
CGT deceased estates
Parties to actions
ISSN: 1445-2782
| Date: | Version: | |
| 27 September 2001 | Original statement | |
| You are here | 14 February 2014 | Updated statement |
| 24 March 2017 | Archived |