ATO Interpretative Decision
ATO ID 2003/705
Income TaxIncome Tax: deductibility of executor's expenses in administering estate
FOI status: may be released
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Status of this decision: Decision Current
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Is the taxpayer, an executor administering a deceased estate, entitled to a deduction, under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), for expenses incurred in administering the estate, where the taxpayer receives a commission for providing the executor services?
Yes. The taxpayer is entitled to a deduction, under section 8-1 of the ITAA 1997, for expenses incurred in administering the estate, where the taxpayer receives a commission for providing the executor services.
The taxpayer was appointed as executor of a deceased estate. In administering the estate the executor incurred telephone, postage, facsimile, photograph and travel expenses. The executor was paid a commission for their work in administering the estate.
Reasons for Decision
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.
The meaning of 'incurred in gaining and producing assessable income' was considered in Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236. In this case the Court stated:
For expenditure to form an allowable deduction as an outgoing incurred in gaining and producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.
The taxpayer incurred the expenses in carrying out their duties of administering the estate. In return for the performance of these duties, the taxpayer received a commission. The commission paid to the taxpayer is assessable income of the taxpayer. Therefore, the expenses were incurred in the course of gaining or producing the taxpayer's assessable income.
As the expenses must be expenses of administering the estate, claims can only be made for expenses incurred from the date that the taxpayer was appointed as executor.
The expenses will not be deductible if they are capital, domestic or private in nature. To determine the character of an expense the nature of the expenditure must be considered (Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; (1946) 8 ATD 190; (1946) 3 AITR 436)). The expense will then take the same nature as the advantage sought to be gained by incurring the expense.
As the expenses were incurred to enable the taxpayer to earn commission (income) then the expenses will also be revenue in nature.
Further, it is considered that the expenses are not private or domestic in nature.
Therefore, the taxpayer is entitled to a deduction under section 8-1 of the ITAA 1997, for expenses incurred in administering the estate, where the taxpayer receives a commission for providing the executor services.Date of decision: 20 June 2003
Year of income: Year ended 30 June 2003
Income Tax Assessment Act 1997
Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation
(1949) 78 CLR 47
(1949) 8 ATD 431
(1946) 72 CLR 634
(1946) 8 ATD 190 Related ATO Interpretative Decisions
ATO ID 2002/60
ATO ID 2002/185
ATO ID 2002/207
ATO ID 2002/948