ATO Interpretative Decision

ATO ID 2001/730

Income Tax

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

Issue

Do legal cost incurred by the executor of a deceased estate to defend a claim for control of the estate 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. The legal costs incurred by the executor defending a claim by a member of the deceased's family to control the deceased's estate do form part of the cost base of the estate's assets pursuant to subsection 110-25(6) of the ITAA 1997.

Facts

An executor of a deceased estate incurred legal costs in defending a claim by a member of the deceased's family under the Family Provisions Act for control of the deceased's estate.

The executor successfully defended the claim. The court found, under the Family Provisions Act, that the family member was not entitled to have control of the deceased assets.

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

Following the death of the deceased and as the executor of the Will, the taxpayer incurred capital expenditure to establish, preserve or defend title to or a right over an asset of the taxpayer.

This forms part of the fifth element of the costs bases of the assets of the taxpayer under subsection 110-25(6) of the ITAA 1997.

The CCH Capital Gains Tax Planner ITAA 1997 at paragraph 30-640 notes that an example of expenditure that would fall within the cost base would include legal fees incurred by a beneficiary in taking action to establish title to inherited 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 taxpayer 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)

Case References:
IR Commrs v. Executors of Dr Robert Richards
   (1971) 1 All ER

Related ATO Interpretative Decisions
ATO ID 2001/729
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
Parties to actions
Present entitlement
Legal title
CGT deceased estates
Capital Gains Tax CoE

Business Line:  Small Business/Individual Taxpayers

Date of publication:  30 November 2001

ISSN: 1445-2782