ATO Interpretative Decision
ATO ID 2001/75
Income Tax
Deductions and expenses: Legal Fees and Administration Expenses (Deceased Estate)FOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Whether legal fees and administration expenses arising, from a deceased estate, are allowable deductions under subsection 51(1) (Income Tax Assessment Act 1936 (ITAA 1936)).
Decision
The legal fees and administration expenses incurred are incidental and relevant to the gaining or producing of assessable income by the estate and are therefore deductible under subsection 51(1) (ITAA 1936).
Facts
The taxpayer is the trustee of a deceased estate. The estate successfully disputed a superannuation payout and received a substantial amount of the proceeds. As no beneficiary is presently entitled, the payout is assessable to the trustee. The taxpayer seeks to deduct the legal fees and administration costs incurred in gaining or producing assessable income.
Reasons For Decision
Pursuant to subsection 51(1) (ITAA 1936) losses and outgoings are allowable deductions to the extent that they are incurred in gaining or producing assessable income. An outgoing is characterised as having been incurred in gaining or producing assessable income if it is 'incidental and relevant to that end' (Ronpibon Tin NL & Tongkah Compound NL v FC of T (1949) 78 CLR 47). In particular, legal expenses take the quality of an outgoing of a capital nature or of an outgoing on account of revenue from the cause or purpose of incurring the expenditure (Hallstroms Pty Ltd v FC of T (1946) 72 CLR 634).
The Letters of Administration grant the trustee full power to sue for all debts and credits owing to the estate. Given that the trustee believed that it was necessary to pursue the action in order to recover fully the amount of death benefit payable to the estate, the costs incurred by the trustee in administering the deceased estate represent a normal incident in managing the affairs of the estate. The costs involved are incidental and relevant to the gaining or producing of assessable income by the estate. As these costs have the essential character of an income-producing expense they are deductible under subsection 51(1) (ITAA 1936).
Date of decision: 7 March 1997
Legislative References:
Income Tax Assessment Act 1936
subsection 51(1)
Case References:
Hallstroms Pty Ltd v FC of T
[1946] 72 CLR 634
91 ATC 4677
22 ATR 281 Ronpibon Tin NL & Tongkah Compound NL v FC of T
[1949] 78 CLR 47
Keywords
Deductions and expenses
Legal expenses
Deceased estate
Eligible termination payments
Administration expenses
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 7 March 1997 | Original statement |
| 12 September 2001 | Archived |