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Edited version of your written advice
Authorisation Number: 1012723676017
Ruling
Subject: Cost base of Estate assets
Question 1
Do the legal and other non-deductible costs incurred, which directly relate to the Part IV of the Administration and Probate Act 1958 application, form part of the cost base of the assets of the Estate?
Answer
Yes
Question 2
Can the legal and other non-deductible costs, directly related to the Part IV of the Administration and Probate Act 1958 application incurred by the Executors, be apportioned between the various assets of the Estate based on the market value of the Assets?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commences on:
1 July 2014
Relevant facts and circumstances
There are a number of assets held within the Estate.
To date, three parties have made applications for an order for provision out of the Estate under Part IV of the Administration and Probate Act 1958 (Part IV Application).
The Estate has incurred legal and other costs in connection with bringing their respective Part IV Applications.
Mediation in relation to this matter has been scheduled.
It is anticipated that the Estate will be required to pay certain legal (and other) costs incurred by the relevant applicants which directly relate to the legal action, either by way of Court order or as agreed between the parties as part of the proposed mediation.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 110-25(6)
Income Tax Assessment Act 1997 subsection 112-30(1A)
Income Tax Assessment Act 1997 section 128-15
Reasons for decision
Question 1
On the death of the deceased the Executors of the will became the legal personal representatives of the estate for the purposes of section 128-15 of the Income Tax Assessment Act 1997 (ITAA 1997). Pursuant to this section the Executors are taken to have acquired the deceased's assets on the deceased's date of death.
Capital expenditure incurred by the Executors to establish, preserve or defend their title to an asset, or a right over the assets of the estate forms the fifth element of the cost base of those assets under subsection 110-25(6) of the ITAA 1997.
The costs in relation to defending a Part IV Application against the estate are costs incurred to establish, preserve or defend title to an asset, or a right over the asset of the Estate. Therefore these costs form part of the fifth element of cost base of the assets of the Estate.
Question 2
In accordance with subsection 112-30(1A) of the ITAA 1997, the expenditure may need to be apportioned to ensure that the element includes that part of the expenditure that is reasonably attributable to that element. In other words, the legal and other costs may need to be reasonably apportioned across the various assets of the estate.
'Reasonably attributable' is not defined in the legislation, however in Taxation Ruling 2004/18 the Commissioner states that there may be a number of methods of apportioning expenditure that produces a reasonable result. One of the examples provided is apportioning on a market value basis.
If the use of the market value method to apportion the legal and other costs incurred results in a reasonable result, then that method of apportionment may be used.