Private ruling: WRE - Legal expenses
Published: October 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for legal expenses incurred in obtaining advice on your director duties? | A1: Yes.

Relevant facts and circumstances: You were an employee and a director of a company. You received salary and wages as remuneration for both your role as an employee and as a director. You were terminated as an employee. You obtained legal advice in regards to your duties as a director, upon the termination of your employment. You incurred legal expenses relating to this advice.

Relevant legislative provisions: Income Tax Assessment Act 1997 (ITAA 1997) section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 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. For legal expenses to constitute an allowable deduction, it must be shown that they were incidental or relevant to the production of your assessable income, (Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431). In your case, you have incurred legal expenses in obtaining advice regarding your director duties. Since you derive assessable income from your position as a director, there is a direct nexus with the expenses you have incurred and your day to day income producing activities. Accordingly, the expenses you have incurred are deductible under section 8-1 of the ITAA 1997 as there