Private ruling: Legal expenses
Date of advice: 27 October 2015
Published: October 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Can you claim a deduction for legal fees relating to objecting to a superannuation lump sum (Death Benefit) payment? | A1: No


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 assessable 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 outcome of the legal action does not affect the deductibility of the legal expense rather the nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. If the advantage is of a capital nature, then the expenses incurred in gaining the advantage will also be of a capital nature. An amount that is capital in nature will remain capital notwithstanding that it is specifically included in the assessable income of the taxpayer. You incurred the legal expenses in order to prevent the related party being paid half the payment of the Death Benefit. The death benefit superannuation payment that you received is a capital receipt. The payment remains a capital receipt despite the fact that the death benefit payment is assessable. As the payment you received is capital in nature, the expenses incurred in relation to the payment are also capital in nature. Consequently, no deduction is allowable under section 8-1 of the ITAA 1997 for the legal expenses you incurred as expenditure of a capital nature is expressly excluded.

Relevant facts: You received a death benefit superannuation payment following the death of a relative. | You were advised half of the death benefit payment was to be paid to another related party. You engaged lawyers to lodge a notice of objection against this proposal. | Your objection was unsuccessful but you incurred legal expenses.