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Ruling
Subject: probate and other expenses
Question
Are the costs of probate and court filing fees an allowable deduction?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
Your relatative died.
The estate was bequeathed to you. The estate was entirely equities. There was no cash.
You have paid for the cost of probate and the court filing fee.
Your income is mainly from shares. You have now inherited more shares.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Detailed reasoning
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.
A number of significant court decisions have determined that for an expense to be an allowable deduction:
it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478 (Lunney's case)), there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47),
and it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).
The expenses incurred were not for the purpose of producing assessable income but for finalising the estate. The expenses incurred to obtain probate or for the court filing fees do not have the necessary connection to the gaining or producing of your assessable income.
We acknowledge that you are acquiring additional shares and will therefore pay additional tax. However the costs incurred are not sufficiently connected to the earning of your dividend income.
Accordingly, the costs are not an allowable deductible under section 8-1 of the ITAA 1997. No deduction is allowable under any other provision for the above expenses.