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Edited version of private advice
Authorisation Number: 1051847636821
Date of advice: 17 June 2021
Ruling
Subject: Rental deductions
Question 1
Does the portion of the legal expenses relating to the transfer of the property form part of the cost base when calculating any Capital Gains Tax (CGT)?
Answer
Yes.
Question 2
Are you entitled to a deduction for the portion of the legal expenses relating to the recovery of rental income?
Answer
Yes.
Based on the information provided to the Commissioner you can apportion the legal expenses incurred by you between the right to defend the asset being the property and the recovery of the rental income.
The legal expenses that relate to the transfer of the property are capital and will form part of the cost base when calculating any CGT.
The portion of the legal expenses relating to the recovery of the rental income are deductible.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and your sibling purchased a property in 19XX as joint tenants.
Late 20XX, you transferred your share of the property to your sibling.
The transfer was on the basis that your sibling would hold your share of the property in trust for you.
You instigated legal action to recover your share of the property.
A court order was issued in late 20XX which ordered your sibling to transfer half the property to you. The court found that the sibling held the half of the property on resulting trust for you.
A further court order was made which ordered your sibling to pay you for half the rental income derived by the property including interest.
The property was transferred to you in 20XX.
You incurred legal expenses in relation to the court case.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
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