ATO ID 2002/207: Legal expenses incurred by executor of deceased estate
Date of decision: 12 October 2001
Year of income: Year ended 30 June 2001
Business line: Small Business/Individual Taxpayers

Issue
Are legal expenses incurred by an executor of a deceased estate in defending an action against a will deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. An executor of a deceased estate cannot claim legal expenses incurred in defending an action against a will as a deduction under section 8-1 of the ITAA 1997.

Facts
The will of a deceased person nominated the taxpayer as the executor of the estate. The will provided for distributions to be made to specific beneficiaries. The will was contested by several beneficiaries as to their entitlements. The taxpayer as executor: The matter was resolved through the court mediation process resulting in increased distributions to certain beneficiaries.

Reasons for decision
Summary: Section 8-1 of ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 8 ATD 431 the High Court stated that: For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of producing such income. The expenditure must be related to the production of assessable income. The legal expenses incurred were not for the purpose of producing assessable income of the estate but for determining the beneficiaries correct entitlement to distributions of the corpus of the estate. The taxpayer is therefore not entitled to a deduction under section 8-1 of the ITAA 1997 for legal expenses incurred in defending an action against the will.

Legislative references: Income Tax Assessment Act 1997 Section 8-1
Case references: Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47 [1949] HCA 15 (1949) 8 ATD 431
Related ATO interpretative decisions: ATO ID 2003/705
Subject references: Legal expenses Deceased estate Executors