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Ruling
Subject: CGT - cost base
Question:
Can you include the legal fees relating to the recovery of money from a co-owner in your cost base when calculating your capital gains liability?
Answer:
No.
This ruling applies for the following periods:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You are a co-owner of a property.
You carried out repairs to the property. You paid for the repairs.
The co-owner verbally agreed to pay for half of the repairs.
You incurred legal expenses when you engaged the services of a lawyer to recover money from the co-owner for their share of the expenses relating to the repairs.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 110-25.
Income Tax Assessment Act 1997 Section 110-55.
Reasons for decision
Generally, the cost base and reduced cost base of an asset is made up of 5 elements (sections 110-25 and 110-55 of the Income Tax Assessment Act 1997 (ITAA 1997)). Briefly these are:
· Money you paid for the asset.
· Incidental costs of acquiring or selling the asset (for example agent's fees and stamp duty).
· Non capital costs associated with owning the asset. (Please note: you cannot include expenditure for which you have, or could have claimed as a deduction for income tax purposes in any year. You can only include these costs for assets that you acquired after 21 August 1991. You cannot include these costs to work out a capital loss).
· Capital costs associated with increasing the value of your asset.
· Capital costs to preserve or defend your title rights to your asset.
In your case, you incurred legal fees in order to take action to recover costs from the co-owner of the property, relating to payment for repairs that were undertaken on the property.
These legal expenses do not relate to the property itself. They do not meet the requirements to be included in any of the five elements of the cost base.
Therefore, you cannot include the legal expenses in the cost base for the purposes of determining your capital gain or capital loss.