Edited version of your private ruling

Authorisation Number: 1012234131876

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Legal expenses

Question 1:

Can you claim a deduction for legal expenses incurred in securing full release of your superannuation as a lump sum disability benefit?

Answer:

No.

Question 2:

Can you claim a deduction for the disbursement fee for a medical report incurred in securing full release of your superannuation as a lump sum disability benefit?

Answer:

No.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You became physically disabled and not able to work.

You sought to claim your superannuation lump sum payment before you reached retirement age.

Your claim was rejected so you sought legal advice to assist you. 

You are under the preservation age.

Your claim was successful and you obtained full release of your entitlements.

You incurred legal expenses and a disbursement fee for a medical report.

The superannuation lump sum payment summary provides the following details of your payment:

· Tax free component

· Taxable component

· Withholding tax

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (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, or relate to the earning of assessable income. 

In determining whether a deduction for legal expenses is allowed under section 8-1 of the ITAA 1997, the nature of the expenses must be considered (Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; (1946) 3 AITR 436; (1946) 8 ATD 190). The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. 

If the advantage is of a capital nature, then the expenses incurred in gaining the advantage will also be of a capital nature. An amount that is capital in nature will remain capital notwithstanding that it is specifically included in the assessable income of the taxpayer. 

You incurred the legal expenses in order to obtain the release of your superannuation as a lump sum disability benefit. The lump sum payment was received for the loss of your earning capacity and is a capital receipt. The payment remains a capital receipt despite the fact that a portion of the lump sum payment is assessable.  

As the payment you received is capital in nature, the expenses incurred in securing that payment are also capital in nature. Consequently, no deduction is allowable under section 8-1 of the ITAA 1997 for the legal expenses you incurred as expenditure of a capital nature is expressly excluded.

Disbursement fee

You also incurred expenses for a medical report that was used to successfully obtain release of your superannuation. The payment was used to assist you in gaining an advantage and is capital in nature. Therefore, no deduction is allowable for the disbursement fee under section 8-1 of the ITAA 1997.