Edited version of private advice

Authorisation Number: 1052088104570

Date of advice: 2 March 2023

Ruling

Subject: CGT - calculating the cost base of an asset

Question 1

Can you include the amount that you paid to your siblings in the cost base of Property C?

Answer

Yes.

The cost base of a capital gains tax (CGT) asset consists of five elements and is generally the cost of the asset when you acquired it plus certain other costs associated with holding and disposing of it. It is accepted that the amount you paid to your siblings are fourth element expenses and can form part of the cost base of the property.

Further information about the cost base of a CGT asset can be found by searching 'QC 66022' on ato.gov.au

Question 2

Can you include the amount that you paid in the legal fees and the amount you paid for accommodation in the cost base of Property C?

Answer

Yes.

The cost base of a capital gains tax (CGT) asset consists of five elements and is generally the cost of the asset when you acquired it plus certain other costs associated with holding and disposing of it.It is accepted that money you paid for legal fees and the accommodation are fifth element expenses and can form part of the cost base of the property.

Further information about the cost base of a CGT asset can be found by searching 'QC 66022' on ato.gov.au

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 June 20XX

Relevant facts and circumstances

Person A and Person B (The Parents) owned a property in City A (Property A). The Parents agreed to use Property A as security for their child's (Child A) business.

Child A's business failed and Property A became subject to repossession proceedings and was sold.

The Parents were forced to live in their caravan.

Another child (Child B) was undergoing treatment for an illness, so The Parents moved in with them for a few years, to help care for them during that time.

Child C and Person D (You) own a property in City B (Property B). Child C is another child of The Parents.

After caring for Child B, The Parents then lived in their caravan on Property B for XX years.

In approximately 19XX, Child A and another child of The Parents (Child D) purchased a block of land in City C (Property C). Child A's intention was to build a house for The Parents to live in to replace Property A that was lost when their business failed.

Once the house was built, The Parents moved in and lived there for several years. During this time Child Dmoved into Property C as well. Child A and Child D covered any loan repayments.

You purchased Property C from Child A and Child D to enable The Parents and Child D to continue to live there.

You acquired Property C as joint tenants.

You borrowed money from a bank to help fund the purchase.

Initially Child A paid rent on behalf of The Parents. You declared the rent as income in your tax returns.

Once Child A stopped paying the rent, The Parents and Child D started to cover the rent payments.

In January 20XX Person B passed away.

In October 20XX the remaining two children, Child E and Child B moved into Property C.

Child A and his partner also lived in Property C at various times over the years.

Everyone moved out of Property C in October 20XX.

Property C was renovated and placed on the market.

On XX January 20XX Property C was sold.

A caveat had been placed on Property C that instructed that once it had been sold, the proceeds were to be placed into a Trust Account with a lawyer.

Child A, Child B, Child D and Child E (Your Siblings) intended on taking the matter to Court. They claimed that the house belonged to Person A and that Person A should receive all the money from the sale of Property C.

Legal proceedings began, but during this time Person A had an accident. They never fully recovered and passed away in August of 20XX.

Legal proceedings moved forward but now with Person A's Estate.

The cost You incurred for the legal proceedings included:

•         Visits to lawyers

•         Mediation meeting in City C

•         Engaging a Barrister to attend

•         Paying for a Kings Council to oversee the mediation, and

•         Accommodation costs to enable you to attend the meetings in City C.

During mediation an offer was made for You to pay an amount to Your Siblings to put an end to the proceedings.

Your Siblings declined the offer.

Several weeks later Your Siblings accepted the offer to prevent the matter progressing to the Courts.

The amount was paid to their lawyer's trust account.

You incurred costs of $X in legal fees and $X for accommodation in City C to attend the mediation.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 subsection 110-25 (5)

Income Tax Assessment Act 1997 subsection 110-25 (6)