Private ruling: Capital gains tax - deceased estate and cost base
Published: July 2011
Ruling period: 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1:  | A1: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased died early 2006. Included in the deceased's Will were the following: · an apartment in Australia, and · properties and cash overseas valued at $X million. The global value of the deceased's assets is $X million. Under the deceased's Will there are number of beneficiaries. The beneficiaries of the deceased's estate are a number of their grandchildren who are overseas residents. You are executrix of the estate. It was your intention to dispose of the apartment as soon as possible to pay the inheritance tax in the overseas country. An illegitimate child of the deceased, person A, an Australian resident, commenced proceedings in the Supreme Court of a state of Australia disputing the validity of the deceased's Will. Person A commenced further proceedings in the Supreme Court of a state of Australia seeking a declaration that the deceased was their parent and seeking provision from the estate. Person A also commenced proceedings for " Possession d'Etat" in the Tribunal de Premiere Instance in an overseas country. It was not possible to dispose of the apartment as the dispute between the above parties was not resolved. The first proceedings relating to the validity of the Will was settled between the parties in late 20XX and probate of the Will was finally granted a month later. The other two sets of proceedings were eventually settled at a mandatory mediation session held at the Supreme Court of a state in Australia on early 20XX. Early 20XX, Consent Orders were signed by both parties. Under the Consent Orders person A was to receive a specified lump sum by way of provision out of the deceased's estate. Under the Consent Orders the disposal of the apartment had to proceed so that person A could be paid the lump sum. In mid 20XX the apartment was disposed of. Once you received confirmation that person A had complied with all their obligations under the Consent Order the lump sum was paid mid 20XX. The costs paid to the Australian lawyers by the beneficiaries was $X. These costs comprise of: · the executor's costs of defending the proceedings contesting the Will and of obtaining the Grant of Probate including solicitor's fees, barrister's fees, mediation fees and all disbursements (including court filing fees etc), and · the executor's cost of defending the Family Provision Act and Paternity Claim (following the Grant of Probate) including solicitor's fees, barrister's fees and all disbursements. You have calculated the beneficiaries' capital gain and estimated income tax payable. You have provided copies of the documentation to support your application and these documents are to be read with and forms part of the scheme for the purpose of this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 128-15 | Income Tax Assessment Act 1997 Subsection 110-25(1) | Income Tax Assessment Act 1997 Subsection 110-25(6) | Income Tax Assessment Act 1997Section 128-15 | Income Tax Assessment Act 1997 Section 112-30

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. If you acquire an asset owned by a deceased person as their executor you are taken to have acquired the asset on the day the person died. If the deceased person acquired the asset on or after the 20 September 1985, the first element of the cost base and reduced cost base is taken to be the deceased person's cost base and reduced cost base of the asset on the day the person died. In your case, as the executor of the estate are taken to have acquired the deceased's assets early 2006 for their cost base. The cost base of a capital gains tax (CGT) asset is made up of five elements. The fifth element is capital costs of preserving or defending your ownership of or right to your asset. In your case, the legal costs you incurred in relation to the challenge of the deceased's Will by person A regarding the validity of the Will and paternity are included under the fifth element of the cost base. These costs were incurred in preserving and defending the ownership of the deceased's assets for the beneficiaries ( the deceased's three grandchildren). Therefore, the legal costs you incurred can be included in the cost base. These costs may need to be apportioned between the various assets of the estate.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Subject: Capital gains tax - deceased estate and cost base: Question 1: Are the legal costs incurred in defending the deceased's Will and the Family Provisions action in the Supreme Court of an Australian state included in the cost base of the assets of the estate?