Private ruling: legal expenses
Published: September 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for legal fees? | A1: Yes.

Relevant facts and circumstances: You are employed as a real estate agent. You had an employment contract with your employer with no expiry date. During the year ended 30 June 20XX there was a change of management at the place of your employment. The new manager sought to amend your employment contract to reduce the amount of commission paid to you. You sought legal advice and incurred legal fees to protect your current employment agreement. After a review, there were minor changes made to your employment contract; however your rate of pay remained the same.

Relevant legislative provisions: Income Tax Assessment Act 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. Taxation Ruling TR 2000/5 examines the deductibility of costs incurred in preparing and administering employment agreements. The ruling allows that the costs associated with the settlement of disputes arising from an existing employment agreement, including the cost of representation, are allowable deductions. In your situation, you incurred costs in obtaining legal advice to protect an existing right under the employment agreement. It is accepted that you engaged your legal representation to settle a dispute arising over the conditions of your existing employment between yourself and your employer. Therefore, you are entitled to a deduction for these legal expenses.

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