Private ruling: Capital gains tax
Date of advice: 14 January 2026
Published: 23 March 2026
Ruling period: Year ended 30 June 20YY
Date scheme commenced: DD MM YY

Ruling: Q1: Are you able to include the relevant sum in the fifth element of the cost base when calculating your capital gain to extinguish the life interest in the property? | A1: Yes. Based on the information provided to the Commissioner you can include in the fifth element of the cost base the amount paid by you to Individual Z to extinguish the life interest in the property. Section 110-25 of the Income Tax Assessment Act 1997 outlines the five elements that make up the cost base or reduced cost base of a CGT asset. The fifth element of the cost base allows you to include in the cost base any amounts that are capital costs of preserving or defending your ownership of or rights to your asset. You can include in the fifth element the sum of $X incurred by you to obtain vacant possession of the property to extinguish the life interest so the property could be sold by you as you were defending your right to the property.

Relevant facts and circumstances: The Trustees owned a property in State A. Individual Z resided in the Property for a number of years. Individual Z asserted that they were granted a life interest in the Property by the then Trustees a few years after they originally started living in the Property (Life Interest). Individual Z asserted that they were entitled to occupy the Property for life. The Trustees sought to secure vacant possession of the Property so it could be sold but Individual Z remained in occupation of the Property pursuant to the asserted life interest. (The Dispute) The Trustees commenced proceedings against Individual Z in Court, in which they sought judgment for vacant possession of the Property. No defence or cross-claim was filed by Individual Z in the Proceedings but Individual Z asserted that they had a Life Interest. The Trustees and Individual Z agreed and acknowledged that Individual Z had a life interest in the Property and sought to take steps to extinguish that interest, for the purposes of settling the Dispute. On a commercial basis, the parties agreed to finalise all matters between them and to settle the Dispute as part of a Deed of Settlement. Under the Deed of Settlement, the Trustees agreed to pay an amount to Individual Z on the signing of the Deed of Settlement provided Individual Z had vacated the property by the Execution Date. This payment was made on the relevant date. Under the Deed of Settlement, the Trustees also agreed to pay another amount to Individual Z upon the completion of the sale of the Property. This payment was made in the month following the first payment. The Trustees had charges over Individual Z in relation to the Property, and Individual Z also lodged a caveat over the Property so it could not be sold. As part of the Deed of Settlement, it was agreed that all parties release charges and agree not to sue or make any further or future claims against each other with respect to the matters which are the subject of the Deed (including the Property) or to any of the matters in any way related to or referred to in the Proceedings or Dispute, but excluding from this covenant the right of either party to make any claim under or for breach of this Deed. The parties signed the Deed of Settlement. The Property was then able to be sold, and it settled a few weeks after the Deed of Settlement had been signed. The total amount was paid by the Trustees to Individual Z in defending its title to the Property (by obtaining vacant possession and a clear title) so that it could be sold. The sale will be included in the tax return for the Trust for the relevant year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 110-25