Edited version of private advice

Authorisation Number: 1051647394931

Date of advice: 19 March 2020

Ruling

Subject: Can trustee fees form part of the CGT cost base expenditure

Question

Is the portion of the fees charged by the Trustee that relates to the cost of owning thenon-income producing real estate ofthe trust, considered to be capital gains tax (CGT) asset cost base expenditure under subsection 110-25(4) of the Income tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The individual was born in 19XX.

There were birth complications which left the individual disabled.

The Supreme Court of the state created a Declaration of Trust in 20XX over a Settled Sum paid as damages due for the personal injuries suffered by the individual due to medical professional negligence.

The Trustee acquired a residence for the individual and family to reside in 20XX.

Due to the physical condition of the individual, the property was especially and extensively designed and renovated to be fit for purpose.

The property was sold in 20XX with a taxable capital gain being generated.

As the property was held and owned by a properly constituted non fixed trust, no main residence exemption is available.

During the ownership of the property the Trustee managed and met the normal costs of owning a property including rates, repairs, insurance premiums etc.

Trustee fees were paid to the professional trustee for their work and expertise as covered under Chapter 5D Licensed Trustee Companies of the Corporation Act 2001 (as amended) and in accordance with the terms of the Deed.

These fees included a Trustee fee calculated as a percentage of the trust (including on the property) and charged against the capital of the trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 110-25(1)

Income Tax Assessment Act 1997 subsection 110-25(4)

Reasons for decision

Where an expense relates to a CGT asset and can't be claimed as a deduction, it may be able to be included as part of the cost base of the CGT asset.

The cost base of a CGT asset to a taxpayer consists of five elements (subsection 110-25(1) of the ITAA 1997). These elements are:

·   Acquisition costs.

·   Incidental costs.

·   Costs of ownership.

·   Capital expenditure to increase or preserve the asset's value.

·   Capital expenditure to establish, preserve or defend title to the asset or a right over the asset.

Section 110-25(4) of the ITAA 1997 states that the third element of the cost base of a CGT asset is the costs of owning the CGT asset but only if the CGT asset was acquired after 20 August 1991. It also states that these costs include:

·   interest on money you borrowed to acquire the asset

·   costs of maintaining, repairing or insuring it

·   rates or land tax, if the asset is land

·   interest on money you borrowed to refinance the money you borrowed to acquire the asset

·   interest on money you borrowed to finance the capital expenditure you incurred to increase the asset's value.

In your case, the Trustee charged fees for the management of the trust estate including the property where the individual and family resided. As the property was not income producing the Trustee's fees were not deductible to the Trust.

During the ownership period of the property, the Trustee charged fees which included for the management of the normal costs of owning the property. It is the Commissioner's view that fees charged by the Trustee relating directly to administering the 'cost of owning' expenditure for the property can be included in the cost base of the CGT asset under the third element (subsection 110-25(4) of the ITAA 1997). The Trustee's fees relating to this element will need to be apportioned on a reasonable basis.