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Edited version of your written advice
Authorisation Number: 1051485790473
Date of advice: 26 February 2019
Ruling
Subject: Legal expenses related to receipt of a non-dependant superannuation death benefit.
Question
Are the legal expenses, incurred, relating to the receipt of a non-dependent death benefit superannuation lump sum payment tax deductible against the relevant income?
Answer
No
This ruling applies for the following period:
30 June 2017 to 30 June 2018
The scheme commences on:
12 September 2017
Relevant facts and circumstances
Your child’s superfund was unwilling to pay the non-dependant benefits after they had passed.
You hired a legal firm to pursue the superannuation fund and recover the amounts owing to your child from the benefit fund.
The matter was finalised in court and you received a number of non-dependent, lump sum superannuation benefits in the name of your late child, the payment amounts are as below:
● unrestricted non-preserved benefit $XXX,XXX.XX
● tax deducted from cash amount $XX,XXX
● disability benefit received $X,XXX.XX
You incurred legal expenses of the amount of XX, XXX. This was incurred for your lawyers working on your behalf to liaison with the super company to receive the lump sum payment from the fund.
Relevant legislative provisions
8-1 of the Income Assessment Act 1997.
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, or relate to the earning of exempt 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 expense 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 release of a superannuation lump sum benefit payment. The lump sum payment was received was a capital receipt and remains a capital receipt even though a portion of the lump sum payment is assessable.
Summary
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 that is capital in nature is expressly excluded.