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Edited version of private ruling
Authorisation Number: 1011614751955
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Ruling
Subject: CGT Cost base - marriage breakdown
Question
Does the lump sum payment that you made to your former spouse form part of the 5th element of the cost base of your unit under section 110-25(6) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer: No.
The ruling applies for the following period:
Year ended 30 June 2010
The Scheme commenced on:
1 July 2010
Relevant facts
You were a sole parent for several years and you acquired a unit for investment purposes after 19 September 1985.
Later you married and bought a family home together. This marriage lasted only for a short time.
After separation you and your child lived in the family home.
You and your ex-spouse entered into mediation to resolve your dispute regarding your matrimonial property.
It was decided that you pay your former spouse a lump sum to obtain their share in the family home. As you did not have enough cash, you sold your investment property. and made the payment.
Relevant Legislation Provisions
Income Tax Assessment Act 1997 110-25.
Reason for decision
Summary
The lump sum payment that you made to your former spouse as part of the matrimonial settlement will not be included in the fifth element of the cost base of your investment property.
Detailed reasoning
Section 110-25 of the Income Tax Assessment Act 1997 (ITAA 1997) states the cost base of a CGT asset consists of 5 elements.
Section110-25(6) of the ITAA 1997 states that the fifth element of the cost base of a CGT asset to a taxpayer includes:
capital expenditure you incurred to establish, preserve or defend your title to the asset, or a right over the asset. (The expenditure can include giving property)
Straightforward examples of expenditure that would fall within the fifth element of the cost base of an asset include:
· Legal fees incurred by a beneficiary in taking action to establish his or her title to property which he or she has inherited;
· Legal fees in settling boundary disputes;
· The cost incurred by an executor to obtain probate.
Legal expenses relating to defending the taxpayers title or right to an asset will generally fall within the fifth element. It is immaterial, from the point of view of section 110-25(6) of the ITAA 1997, whether the action is settled out of court or is the subject of contested proceedings.
"Defending the taxpayer's title or right" would cover the situation where a person lays a claim to the asset in whole or in part and institutes legal proceedings to establish that claim. The taxpayer's costs in defending those proceedings would be costs in defending the taxpayer's title.
You have paid a lump sum to your former spouse as part of the matrimonial settlement. You obtained this money by selling your investment property. However, this is not directly incurred to preserve the title of your investment property.
Accordingly, you have not incurred any expenditure to establish, preserve or defend your title of your investment property.
Therefore the lump sum payment that you made to your former spouse will not be included in the fifth element of the cost base of your investment property.
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