Private ruling: Legal expenses
Date of advice: 5 August 2020
Published: September 2020
Ruling period: Year ended 30 June 20XX to year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the entity entitled to a deduction for legal expenses and award costs under section 40-880 of the Income Tax Assessment Act 1997? | A1: Yes. The legal expenses are business capital expenditure incurred in relation to a business that was proposed to be carried on for a taxable purpose and none of the exceptions apply. The expenses are deductible over five years with the first deduction available in the year the expenditure was incurred.

Relevant facts and circumstances: The entity operates a business. The entity incurred legal expenses related to the advice, negotiation and preparation of a joint venture agreement with an unrelated party. Negotiations between the parties broke down. At that time the entity claimed that there was an enforceable agreement in place and commenced legal action (dispute). The entity incurred legal expenses in relation to the dispute. The legal action was unsuccessful, and the entity was ordered to pay the other party's legal costs (award costs).

Relevant legislative provisions: Income Tax Assessment Act 1997 section 40-880