Private ruling: Legal expenses
Date of advice: 9 August 2018
Published: September 2018
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to a deduction for your legal expenses incurred? | A1: Yes. 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. For legal expenses to constitute an allowable deduction, it must be shown that they are incidental or relevant to the production of your assessable income. In your case the legal expenses incurred relating to the dispute with the managing agent are sufficiently connected to the earning of your assessable rental income. Therefore the associated legal expenses are deductible under section 8-1 of the ITAA 1997.

Relevant facts and circumstances: You own a rental property. You became aware that the managing agent was not operating the renting of the units in the complex in a transparent manner. The agent managed the leases, letting and cleaning of the units. The unit owners proceeded to negotiate a lease document between the manager and the owners. As the majority of owners were not happy with the way in which the manager was operating the rentals, they notified the manager of their intention to withdraw from the letting arrangement as permitted in the agreement. The managing agent later sued you and other owners for lost earnings due to the termination of the managing rights. You have incurring legal fees in relation to the renting of your property.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1.