Private ruling: Legal expenses
Published: July 2012
Ruling period: Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2008

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


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 (ITAA 1997) provides that a loss or an outgoing is an allowable deduction if it is incurred in producing assessable income or in carrying on a business for the production of assessable income unless that loss or outgoing is capital or of a private or domestic nature. The courts on a number of occasions have determined legal expenses to be an allowable deduction if the expenses arise out of the day to day activities of the taxpayer's business. The action out of which the legal expense arises has to have more than a peripheral connection to the taxpayer's business and the expense may arise out of litigation concerning the taxpayer's professional conduct. In FC of T v. Rowe (1995) 31 ATR 392; 95 ATC 4691, an employee incurred legal expenses in defending the manner in which he performed his employment duties. The court accepted that such expenses were allowable and no significance was placed on the taxpayer's status as an employee. You incurred legal expenses in defending allegations by your employer of fraud and criminal acts and that you breached your contractual and fiduciary duties. In carrying out the actions that led to the allegations, you were executing your employment duties. Consequently, the legal expenses incurred are an allowable deduction.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | You were accused of fraud and criminal acts by your employer. | It was alleged that you breached your contractual and fiduciary duties. | You were acquitted from all the accusations and all the proceedings were dropped. | The court ordered that your legal costs relating to two appeals be paid by your employer. | You incurred additional legal expenses in the 2008-09, 2009-10 and 2010-11 financial years.