Issue
Do costs incurred by the trustee of a deceased estate to resolve a dispute with a person claiming an interest in an asset of the estate, form part of the cost base of the asset under subsection 110-25(5) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The costs incurred to settle the dispute, including the legal fees paid in respect of the dispute, form part of the cost base of the estate's asset under subsection 110-25(5) of the ITAA 1997.
Facts
A person resided in the home of their relative for a period of 10 years before the death of the relative, assisting with the care of the relative and maintaining the property. After the death of the relative, the person claimed that they had acquired a life interest in the deceased's property. The person was not mentioned in the will of the deceased.
While the trustees of the estate disputed the person's claim, the trustees entered into a settlement agreement with the person in order that they may dispose of the property as vacant premises. Under the settlement agreement, the trustees paid the person a substantial sum to surrender any claims the person may have had against the estate. The trustees also incurred legal fees during the dispute. The property was later sold, more than two years after the date of death of the deceased.
Reasons for Decision
Subsection 110-25(5) of the ITAA 1997 relates to the fourth element of a cost base and includes capital expenditure you incurred to increase or preserve the asset's value.
The payment made by the trustees was incurred to remove an impediment to the sale of the property. The person's claim of a life interest was an issue which needed to be resolved before probate could be granted, allowing the sale of the property to proceed.
The requirements of the fourth element of the CGT cost base are satisfied (subsection 110-25(5) of the ITAA 1997). As such, the costs incurred by the trustees to settle the dispute, including the legal fees paid in respect of the dispute, form part of the cost base of the estate's asset under subsection 110-25(5) of the ITAA 1997. [HISTORY: This interpretative decision has been amended as a result of the legislative changes made to certain elements of the CGT cost base, where the relevant CGT event happens on or after 1 July 2005. However, these changes do not affect the decision in this interpretative decision.]
Amendment History
Date Part Comment 9 June 2017 Reason for Decision Minor amendments 1 September 2014 Reasons for Decision Remove and replace terms to reflect legislative changes
Date | Part | Comment
9 June 2017 | Reason for Decision | Minor amendments
1 September 2014 | Reasons for Decision | Remove and replace terms to reflect legislative changes