Private ruling: Legal expenses
Date of advice: 16 March 2026
Published: 29 June 2026
Ruling period: Year ending 30 June 202X
Date scheme commenced: 1 July 202X

Ruling: Q1: Can the legal expenses incurred by the taxpayer be claimed under section 8-1 of the Income Tax Assessment Act 1997 ? | A1: No. The legal expenses incurred by the taxpayer cannot be claimed under section 8-1 of the ITAA 1997 . The expenses were incurred in the course of obtaining a Total and Permanent Disability benefit which is a capital payment.

Relevant facts and circumstances: The taxpayer XXXXX XXXXXXX ('you') tried to claim a Total and Permanent Disability (TPD) benefit from your superannuation fund, YYY. YYY refused your claim which resulted in you employing a law firm, ZZZ, to address this issue with YYY. You were subsequently successful in your application for the benefit. The payout from YYY for the TPD claim is paid to you as assessable income and is reported in your Income Tax Return (ITR) for the year ended 30 June 202X. An invoice dated XX XXXXXXX 20XX for legal fees of $XX,XXX (total professional costs) less $X,XXX (disbursements) was issued to you by ZZZ and you paid this on settlement of the TPD claim on XX XXXXXX 202X. You have reported your TPD payments in the taxpayer "Prefill report" of your ITR for the year ended 30 June 202X. The legal advice you sought and the action taken resulted in release of the TPD payments to you by YYY.

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

Reasons for decision: Detailed Reasoning - Detailed reasoning: You are not entitled to a deduction for legal expenses you incur to obtain a TPD benefit as the advantage you are seeking is capital in nature, rather than revenue. Therefore, the legal expenses are also considered to be capital in nature and are not deductible under section 8-1 of the ITAA 1997. 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 or are necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income, except where the outgoings are of a capital, private or domestic nature. In determining whether a deduction for legal expenses is allowable under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered. The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. The courts have established guidelines for distinguishing between capital and revenue outgoings. In Sun Newspapers Ltd and Associated Newspapers Ltd v. FC of T (1936) 61 CLR 337; (1938) 45 ALR 10; (1938) 1 AITR 403; 5 ATD 87, three elements were identified as being relevant: • the nature of the advantage sought • the way it is to be used or enjoyed • the means adopted to get it. In your case you have incurred legal expenses in obtaining a TPD benefit from your retirement fund. The legal action was required to engage a law firm to address this issue with your retirement fund. Although your expenses enabled you to derive income from your TPD benefit, the legal action taken to hire a lawyer does not have the necessary connection with your income earning activities. The legal expenses you incurred were used to seek an advantage that has an enduring benefit, i.e., the TPD benefit, which is considered to be capital in nature regardless of how it is received in your hands - lump sum or payment by instalments. The legal expenses take on the character of the benefit you are seeking. As the benefit is considered to be capital in nature, the legal expenses are also considered to be capital in nature. Regardless of whether the TPD benefit is paid in several instalments rather than as a lump sum, the legal expenses are not deductible as the character the expenses focus on is the advantage sought. Legal costs take their advantage from the benefit they are intended to secure. TPD benefits represent compensation for loss of earning capacity, therefore are a capital entitlement. As the legal expenses related to securing a capital benefit, they remain capital in nature. Therefore, the legal expenses are not deductible under section 8-1 of the ITAA 1997 as the advantage sought is capital in nature, being the TPD, and therefore the legal expenses are capital in nature whether the TPD payments are paid as instalments or as a lump sum payment.

The legal expenses incurred by the taxpayer cannot be claimed under section 8-1 of the Income Tax Assessment Act 1997 . The expenses were incurred in the course of obtaining a Total and Permanent Disability benefit which is a capital payment.