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Edited version of your written advice
Authorisation Number: 1012778349318
Ruling
Subject: Cost base
Question 1
Are the legal costs incurred in defending the deceased's will included in the cost base of the assets of the estate?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The deceased passed away during the relevant financial year.
At the time of their death, the assets of the deceased consisted mainly of a property.
The property was purchased after 19 September 1985.
Probate in common was grated during the subsequent financial year and all property was dealt with under the will.
The beneficiaries commenced a family provision claim over their interest in the property.
Their claim was successful and judgement was handed down during the 20XX financial year.
The Judge deemed all legal costs be deducted from the sale of the property.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 128-15.
Income Tax Assessment Act 1997 Subsection 110-25(1).
Income Tax Assessment Act 1997 Subsection 110-25(6).
Income Tax Assessment Act 1997 Section 128-15.
Income Tax Assessment Act 1997 Section 112-30.
Reasons for decision
If you acquire an asset owned by a deceased person as their executor you are taken to have acquired the asset on the day the person died. If the deceased person acquired the asset on or after the 20 September 1985, the first element of the cost base and reduced cost base is taken to be the deceased person's cost base and reduced cost base of the asset on the day the person died.
In your case, the executrix of the estate is taken to have acquired the deceased's assets during the 20YY financial year for the cost base.
The cost base of a capital gains tax (CGT) asset is made up of five elements. The fifth element is capital costs of preserving or defending your ownership of or right to your asset.
In your case, the legal costs you incurred in relation to the challenge of the deceased's will by the beneficiaries are included under the fifth element of the cost base. These costs were incurred in preserving and defending the ownership of the deceased's assets for the beneficiaries.
Therefore, the legal costs you incurred can be included in the cost base.
These costs may need to be apportioned to the various assets of the estate.
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