Private ruling: Deductibility of legal expenses
Date of advice: 15 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Are you entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for legal expenses incurred in pursuing a claim for an increase in the pension payable under your superannuation scheme? | Yes.

Relevant facts and circumstances: You have lodged a claim with your superannuation fund to preserve certain benefits under the scheme. If your claim is successful, you will be entitled to an additional pension payable under the scheme on retirement. On resigning from your employer many years ago, you were unaware that you could have lodged an election to preserve the benefits under the superannuation scheme. You subsequently became aware that other members of the scheme had been in the same situation and had successfully lodged claims. Your initial application was rejected and since then you have obtained further evidence and have incurred legal fees for lawyers acting on your behalf and providing ongoing advice.

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

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, 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 expenditure 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 which is sought to be gained by incurring the expenses. If the advantage to be gained is of a revenue nature, then the expenses incurred in gaining the advantage will also be of a revenue nature. In the same way, if the advantage to be gained is of a capital nature then the expenses incurred in gaining the advantage will also be of a capital nature. It follows also that the character of legal expenses is not determined by the success or failure of the legal action. In your case, you have incurred legal expenses in pursuing a claim for an additional pension to be paid under your superannuation scheme. Consequently, it is evident that the advantage you are seeking is of a revenue nature. Therefore, the legal expenses were incurred in relation to gaining or producing your assessable income and are deductible under section 8-1 of the ITAA 1997.