Private ruling: Legal expenses
Published: March 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Can you claim a deduction for legal expenses incurred in relation to a family property settlement which included an assessable superannuation payment? | A1: 


Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (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, or relate to the earning of exempt income. In determining whether a deduction for legal expenses is allowed under section 8-1 of the ITAA 1997, the nature of the expenses must be considered ( Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; (1946) 3 AITR 436; (1946) 8 ATD 190). The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. In your case, you have incurred legal expenses in order to negotiate a property settlement with your former spouse, which included a superannuation payment. Legal expenses incurred for family law proceedings are considered to be private and domestic in nature as they are incurred as a result of your domestic/private life and not from your income earning activities. This is the case even though property received under the settlement may ultimately be assessable in your hands. Therefore, no deduction is allowable under section 8-1 of the ITAA 1997 for the legal expenses you incurred as expenditure of a private and domestic in nature is expressly excluded.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: In the 2010-11 financial year, you incurred legal fees in order to negotiate a property settlement with your former spouse. | Under the property settlement the property you received included a car, personal possessions, some cash and a family law superannuation payment. | You have not engaged in any paid employment for many years. | You declared that you were retired from the workforce in order to receive part of the superannuation amount as a lump sum payment in the 2010-11 financial year. | The untaxed portion of this lump sum payment was assessable to you in the 2010-11 financial year.