| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012730641588
Ruling
Subject: Legal expenses
Question
Are you entitled to a deduction for legal expenses?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
On the trust balance sheet there is an unsecured loan which was in the name of an asset trust.
The third equity partner in a company and a unit trust claimed that the unsecured loan was theirs and sent a demand letter for repayment.
You sought legal advice to determine whether the partner was entitled to the amount of the unsecured loan.
You also sought to identify the legal entities involved in the unit trust.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 allows a person to claim a loss or outgoing that is incurred in gaining or producing assessable income so long as the loss or outgoing is not of a capital, private or domestic nature.
Where legal expenses arise as a consequence of the day to day activities of a business, that is, they are incurred in gaining or producing assessable income, the object of the expenditure is devoted towards a revenue end and the legal expenses are deductible (Herald & Weekly Times v Federal Commissioner of Taxation (1932) 48 CLR 113; 2 ATD 169).
However, where the expenditure is devoted towards a structural rather than an operational purpose, that is, they relate to the profit yielding structure, the expenditure is of a capital nature and the expenses are not deductible (Sun Newspapers Ltd v FC of T (1938) 61 CLR 337; ATD 87; (1938) 1 AITR 403).
Your legal expenses were incurred in determining the structure of the trust and the ownership of funds held rather than the operation of the trust. As such, your legal expenses are deemed to be capital in nature. Since the legal expenses are of a capital nature they are not deductible.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
