Private ruling: Income Tax– Deductions – Legal expenses
Date of advice: 4 October 2018
Published: November 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are your legal expenses of $x deductible under section 8-1 of the Income Tax Assessment Act 1997 ? | A1: Yes. Your legal expenses are deductible, as the principal reason for incurring them was to defend your actions in carrying out your employment duties, as discussed in ATOID 2001/549.

Relevant facts and circumstances: You were employed as a teacher/tutor. You were accused by your superior of marking students too harshly and consequently were directed to adjust some students’ grades from a fail to a pass. You therefore complained to management regarding what you considered to be unprofessional conduct of your superiors. This complaint resulted in a deterioration of relations between you and management and resulted in investigations and further complaints regarding your professional conduct. This caused you considerable stress and anxiety and resulted in you taking medical certified leave. After seeking legal advice, a solicitor’s letter was sent to your employer in an effort to prevent any further attack on your reputation and to advise them of your rights under the Fair Work Act. The solicitor’s letter set out a defence of the manner in which you carried out your duties as a teacher/tutor, including defending you against further allegations of acting aggressively towards other staff. These events resulted in you losing actual teaching hours and income of over $x per week. As reputation is of extreme importance in academia, you were forced to incur these expenses to protect your current and future earning capacity. You incurred legal expenses totalling $x in this matter.

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