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Edited version of your private ruling
Authorisation Number: 1012470057768
Ruling
Subject: Deceased estate - expenses
Question 1
Are the full solicitor's fees deductible in the estate's return?
Answer
No
Question 2
Are the portion of solicitor's fees incurred in relation to the record and account keeping of the estate's rental properties deductible in the estate's return?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
The deceased estate incurred solicitor's fees in finalising the estate.
The solicitor's fees totalled $X including GST.
Prior to their death, the deceased owned a number of investment properties that passed to the estate.
During the administration of the estate, it took an extended period of time for it to be determined who should receive these properties. For this period the solicitors took on the accounting/management role in relation to the properties.
A portion of the solicitor's fees related to the record keeping and account keeping of the rental properties.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 25-5
Reasons for decision
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, or relate to the earning of exempt income.
Tax-related expenses
Section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for expenditure you incur in relation to managing your tax affairs.
Taxation Determination TD 94/91 contains the Commissioner's view in relation to who is allowed a deduction under subsection 69(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for expenditure in respect of a tax related matter of a trust. (Section 69(1) of the ITAA 1936 has been replaced by section 25-5 of the ITAA 1997).
At paragraph 3, TD 94/91 states:
If a trustee of a trust incurs expenditure in respect of the management or administration of the income affairs of the trust or in compliance with an obligation under a Commonwealth law imposed on the trustee in respect of another taxpayer, a deduction is allowed for this expenditure in the tax return of the trust.
In this case, the estate has incurred some expenditure in relation to the management and account keeping of a number of income producing properties. Accordingly, the trustee of the estate can claim a deduction for the portion of the solicitor's fees that relate to the management and account keeping of the investment properties in the tax return of the estate.
Expenses relating to the general administration of the estate
Expenditure in relation to the general administration of the estate, including expenses incurred in determining the beneficiaries' entitlement to the estate is not deductible (ATO Interpretive Decision ATO ID 2002/207). These expenses are not tax related expenses under section 25-5 of the ITAA 1997 and are excluded from being deducted under section 8-1 of the ITAA 1997 as they are not incurred in gaining assessable income.
Accordingly, the portion of the solicitor's fees that relate to the general administration of the estate are not deductible.