ATO Interpretative Decision
Income TaxCGT - deceased estate - cost base of CGT asset - legal costs incurred in confirming validity of the will
FOI status: may be released
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Status of this decision: Decision Current
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Do legal costs, incurred by the executor of a deceased estate in confirming the validity of the deceased's will, form part of the cost bases of the estate's assets pursuant to subsection 110-25(6) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. Legal costs, incurred by the executor of a deceased estate in confirming the validity of the deceased's will, do form part of the cost bases of the estate's assets pursuant to subsection 110-25(6) of the ITAA 1997.
The taxpayer is the executor of a deceased estate. The taxpayer defended a claim by one of the beneficiaries who commenced a challenge to the validity of the will of the deceased in the Supreme Court. The Supreme Court held that the will was valid.
The Supreme Court granted probate in solemn form and ordered that the matter be submitted to the registrar for the completion of the grant of probate.
Reasons for Decision
As the executor of the deceased estate, the taxpayer is a legal personal representative of the deceased as defined under subsection 995-1(1) of the ITAA 1997. On the death of the deceased, the assets of the deceased devolved to the taxpayer, the deceased's legal personal representative. Pursuant to section 128-15 of the ITAA 1997, the taxpayer is taken to have acquired the deceased's bequeathed assets on the deceased's date of death.
Capital expenditure incurred by a taxpayer to establish, preserve or defend their title to an asset, or a right over an asset forms the fifth element of the cost base of the asset under subsection 110-25(6) of the ITAA 1997.
The Australian Capital Gains Tax Planner : ITAA 1997 database, CCH Australia Limited at paragraph 30-640 notes that examples of expenditure that would fall within the fifth element of the cost base include:
- legal fees incurred by a beneficiary in taking action to establish title to the estate's property
- the costs incurred by an executor to obtain probate (IR Commrs v. Executors of Dr Robert Richards  1 All ER 785).
As stated in Cooper, GS 1992, Capital gains tax 2nd Edn, Butterworths, Sydney, p. 87:
Defending the taxpayer's title or right seems to refer to action taken when the title or right is put in dispute. The most obvious example of this is where someone else lays a claim to the asset in whole or in part and institutes legal proceedings to establish that claim. Costs of the taxpayer in defending those proceedings would be costs in defending the taxpayer's title.
This expenditure incurred in confirming the validity of the deceased's will and obtaining the grant of probate was incurred by the taxpayerto preserve the rights over the assets of the estate. Consequently, it forms part of the cost bases of the estate's assets pursuant to subsection 110-25(6) of the ITAA 1997.
This expenditure may need to be apportioned across the various assets of the estate in accordance with subsection 112-30(1A) of the ITAA 1997.
|Date of amendment||Part||Comment|
|14 February 2014||Title, Issue, Decision, Facts, Reasons for Decision, Case References, Other References||Amended for style adherence|
|Reasons for Decision, Legislative References||Amended for clarity|
|Related ATO Interpretative Decisions||Amended to remove withdrawn ATO IDs and to replace with the replacing ATOID|
|Keywords||Amended to remove irrelevant keywords|
IR Commrs v. Executors of Dr Robert Richards
 All ER 785
ATO ID 2001/730
ATO ID 2005/40
Australian Capital Gains Tax Planner : ITAA 1997 database, CCH Australia Limited
Cooper, GS 1992, Capital gains tax, 2nd edn, Butterworths, Sydney
Capital gains tax
CGT cost base
CGT deceased estates