Private ruling: Deductions for legal expenses
Date of advice: 20 January 2020
Published: March 2020
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Are the legal expenses you incurred when defending criminal charges arising from your employment activity deductible? | A1: Yes Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income. You can deduct these losses or outgoings except where they are of a capital, private or domestic nature, or relate to the earning of exempt income. Legal expenses will be characterised as an outgoing of capital or revenue nature depending on the cause or purpose of incurring the expenditure. The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. In this instance, you have incurred the costs in connection with the earning of your assessable income. The expense was necessary to enable you to continue earning your assessable income and has an immediate connection to the earning of that income. Therefore, the costs are of a revenue nature and will be deductible under section 8-1 of the ITAA 1997. In your case, the Magistrate who heard the charge of assault against you held that your actions that were the subject of the assault charge were authorised, justified or excused by law. He also held that as part of your employment your actions were necessary to maintain the security and good order of the place you work. Therefore, the legal costs can be seen to be a necessary incident of earning your assessable income and are therefore deductible under section 8-1 of the ITAA 1997.

Relevant facts and circumstances: During XXXX, a work colleague found themselves in a confrontation with another person at XXXX. You went to your colleague's assistance. Following this incident, you were charged with assault occasioning bodily harm in company. This charge was brought by the person involved in the confrontation. You incurred expenses of $XXXX to obtain legal assistance in relation to the assault charge. On XXXX, XXXX of XXXX Lawyers attended the XXXX Magistrates Court on your behalf in relation to a charge of Assault Occasioning Bodily Harm in company. The matter was heard by the Magistrate XXXX. The Magistrate found there was no evidence capable of supporting a verdict of guilty against you. As a result, the Magistrate found there was no case for you to answer and declined to commit your charge for trial to the District Court of XXXX. The charge was dismissed. During the hearing of the matter, the Magistrate stated that your actions in relation to this matter were authorised, justified or excused by law. In addition he found that your actions were necessary to maintain the security and good order of the place you work. You were suspended from your employment pending investigations. You do not have Professional Indemnity Insurance and are not pursuing the costs nor can you pursue the person that brought the charge against you.

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