Private ruling: Work related deductions - legal expenses
Date of advice: 3 March 2021
Published: June 2021
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the legal and travel expenses you incurred prior to your termination deductible under section 8-1 of the Income Tax Assessment Act 1997 ? | A1: Yes Your legal expenses are deductible as they were incurred in the course of gaining or producing your assessable income. When the principal reason for incurring the legal expenses is defending the actions of the taxpayer in carrying out their employment duties through which they gain or produce assessable income, such expenses are characterised as being of a revenue nature and are deductible (Inglis v. FC of T 87 ATC 2037; and Case V116 88 ATC 737; AAT Case 4502 (1988) 19 ATR 3703). Similarly, in FC of T v. Day [2008] HCA 53 and FC of T v. Rowe (1995) 60 FCR 99; (1995) 31 ATR 392; 95 ATC 4691, the court accepted that legal expenses incurred in defending the manner in which a taxpayer performed his employment duties were allowable.

Relevant facts and circumstances: During the year ended 30 June 20XX you were suspended from your employment without pay. You had served XX months of employment prior to your suspension. You travelled from City A to City B to seek legal advice. You incurred legal expenses. Your legal representative was able to negotiate that your suspension without pay was amended to suspension with pay. Your employment was terminated during the year ending 30 June 20XX.

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