ATO ID 2001/622: Legal Expenses - to obtain superannuation payment before retirement age
Date of decision: 31 August 2001
Business line: Small Business/Individual Taxpayers

Issue
Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for legal expenses incurred in obtaining their superannuation lump sum payment before retirement age?

Decision
No, the taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for legal expenses incurred in obtaining their superannuation lump sum payment before retirement age.

Facts
The taxpayer ceased work before retirement age as a result of a medical condition. The taxpayer wanted to have access to their superannuation lump sum payment before they reached retirement age. The taxpayer incurred legal expenses in order to pursue early payment of the superannuation lump sum. The taxpayer received a superannuation lump sum payment during the current year of income.

Reasons for decision
Summary: Section 8-1 of the 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. In determining whether a deduction for legal expenses is allowed under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered (Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; [1946] HCA 34). The nature or character of the legal expenses follows the advantage which is sought to be gained by incurring the expenses. The legal expenses were not incurred by the taxpayer in asserting their right to the superannuation payment but rather for early withdrawal of the monies from the taxpayer's superannuation fund. The early withdrawal of monies from the taxpayer's superannuation fund is an issue of a private nature. There is an insufficient nexus between incurring the legal expenses and the gaining of assessable income. The legal expenses are also private in nature and therefore not deductible under section 8-1 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 8-1
Case references: Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634 [1946] HCA 34
Subject references: Deductions and expenses Legal expenses Lump sum superannuation payments Superannuation