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Edited version of your private ruling
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Ruling
Subject: Deceased estate and cost base
Question:
Are you entitled to include the expenses that you have incurred in settling claims in regards to a deceased estate in the fourth element of the cost base?
Answer: Yes.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts
Your grandmother passed away.
As a consequence of your grandmothers will, you and your sibling inherited a property from your grandmother's estate.
Before probate was granted your grandmother's will was contested by her children.
The claimants were successful resulting in the court awarding them each a percentage in the estate.
The estate did not have enough money to settle with the claimants so you and your sibling each contributed a sum of money to the estate to settle the claims.
After you and your siblings contribution settlement with the claimants occurred and the title of the properties passed on to you and your sibling.
You disposed of your property shortly after settlement.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Section 110-25.
Income Tax Assessment Act 1997 Subsection 110-25(5)
Reasons for decision
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985.
Under section 104-10 of the ITAA 1997, a CGT event A1 occurs when you dispose of the CGT asset to someone else. You make a capital gain if the capital proceeds from the disposal are more than the assets cost base. You make a capital loss if those capital proceeds are less than the assets reduced cost base.
Section 110-25 of the ITAA 1997 provides an assets costs base consists of 5 elements. Subsection 110-25(5) of the ITAA 1997 relates to the fourth element of a cost base and includes capital expenditure you incurred to increase the asset's value. The expenditure must be reflected in the state or nature of the asset at the time of a CGT event happening to the asset.
An expense incurred by trustees to remove an impediment to the sale of a property which is required to be resolved before probate could be granted, will satisfy the requirements of the fourth element of the CGT cost base under subsection 110-25(5) of the ITAA 1997.
You have incurred expenses in order to remove an impediment allowing for the sale of a property that you inherited as a beneficiary of a deceased estate. As the expenses were incurred in order to resolve a dispute before probate could be granted, they satisfy the requirements of the fourth element of the cost base.
Accordingly, you are entitled to include these expenses relating to the removal of the impediment that allowed for the sale of the property in the cost base, under subsection 110-25(5) of the ITAA 1997.
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