ATO Interpretative Decision

ATO ID 2001/729

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Do legal costs incurred by the executor of a deceased estate in confirming the validity of the deceased's Will form part of the cost base 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 of a deceased estate in confirming the validity of the deceased's Will do form part of the cost base 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 executor defended a claim by one of the beneficiaries who commenced a challenge to the validity of the Will of the deceased in the Supreme Court. The Supreme Court held that the Will was valid.

The Supreme Court granted probate in solemn form and ordered that the matter be submitted to the registrar for the completion of the grant.

Reasons for Decision

On the death of the deceased, the taxpayer, as the executor of the Will, became the legal personal representative of the estate for the purposes of section 128-15 of the ITAA 1997. Pursuant to this section the taxpayer had acquired the deceased's bequeathed assets on the deceased's date of death.

Capital expenditure incurred to establish, preserve or defend title to an asset, or a right over the asset that is expenditure incurred within subsection 110-25(6) of the ITAA 1997 forms part of the cost bases of assets of the taxpayer. The expenditure was incurred by the taxpayer in their capacity as the executor of the estate to preserve and defend the title to the assets of the estate.

The CCH Capital Gains Tax Planner ITAA 1997 at paragraph 30-640 notes that expenditure that would fall within the cost base could include legal fees incurred by a beneficiary in taking action to establish title to the estate's property. The cost base could also include costs incurred by an executor to obtain probate (IR Commrs v. Executors of Dr Robert Richards (1971) 1 All ER 785).

Gordon S Cooper in his publication Capital Gains Tax 2nd Edition states at 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."

This expenditure was incurred by the executor to preserve the rights over the assets of the estate in confirming probate. The Supreme Court granted probate in solemn form and ordered that the matter be submitted to the registrar for the completion of the grant.

Such expenses may need to be apportioned to the various assets of the estate in accordance with subsection 112-30(1A) of the ITAA 1997.

Legislative References:
Income Tax Assessment Act 1997
   Subsection 110-25(6)
   Subsection 112-30(1A)
   Section 128-15

Case References:
IR Commrs v. Executors of Dr Robert Richards
   (1971) All ER 785

Related ATO Interpretative Decisions
ATO ID 2001/730
ATO ID 2001/731
ATO ID 2001/732
ATO ID 2001/733
ATO ID 2001/734
ATO ID 2003/1048

Other References:
The CCH Capital Tax Planner ITAA 1997
Gordon S Cooper Capital Gains Tax 2nd Edition

Keywords
Capital gains tax
Capital gains
CGT asset issues
CGT cost base
CGT deceased estates
Capital Gains Tax CoE

Business Line:  Small Business/Individual Taxpayers

Date of publication:  30 November 2001

ISSN: 1445-2782