ATO Interpretative Decision
ATO ID 2002/207
Income TaxLegal expenses incurred by executor of deceased estate
FOI status: may be released
This document has changed over time. View its history.
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Are legal expenses incurred by an executor of a deceased estate in defending an action against a will deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No. An executor of a deceased estate cannot claim legal expenses incurred in defending an action against a will as a deduction under section 8-1 of the ITAA 1997.
The will of a deceased person nominated the taxpayer as the executor of the estate.
The will provided for distributions to be made to specific beneficiaries.
The will was contested by several beneficiaries as to their entitlements.
The taxpayer as executor:
- engaged legal representation to defend the action against the will; and
- incurred substantial legal expenses to defend the action.
The matter was resolved through the court mediation process resulting in increased distributions to certain beneficiaries.
Reasons for Decision
Section 8-1 of 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 courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 56 ALR 785; 8 ATD 431 the High Court stated that:
'For expenditure to form an allowable deduction as an outgoing incurred in gaining or 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 producing such income.'
The expenditure must be related to the production of assessable income. The legal expenses incurred were not for the purpose of producing assessable income of the estate but for determining the beneficiaries correct entitlement to distributions of the corpus of the estate. The taxpayer is therefore not entitled to a deduction under section 8-1 of the ITAA 1997 for legal expenses incurred in defending an action against the will.Date of decision: 12 October 2001
Year of income: Year ended 30 June 2001
Income Tax Assessment Act 1997
Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation
78 CLR 47;
56 ALR 785;
8 ATD 431
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