Private ruling: Legal expenses and counsel fee
Published: June 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for legal costs and counsel fees under either section 8-1 or 25-40 of the Income Tax Assessment Act 1997 (ITAA 1997) ? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 S ection 25-40

Reasons for decision: Summary: 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 except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. In your case, you were required to pay legal fees to the owner of a property you wished to buy and the cost of counsel to assist you in court. While we accept that you represented yourself in your capacity of an employee solicitor, the costs related to your intention to purchase a home in which you intended living. They were not incurred as a result of producing your assessable income as a solicitor. The expenses are considered to be private and, as such, a deduction is not allowable. You can deduct a loss arising from the carrying on or carrying out of a profit-making undertaking or plan if any profit from that plan would have been included in y our assessable income by section 15-15 of the ITAA 1997 (section 25-40 of the ITAA 1997). This section does not apply in your circumstances because these provisions do not apply to property acquired after 20 September 1985. Notwithstanding this, the expense does not relate to any profit making scheme as you were intending purchasing a private property in which to live and incurred costs in the attempt.

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. | Relevant facts: You were a paralegal and became a qualified solicitor. | You intended purchasing a property in which you would live. | The owner of the property changed their mind and decided not to sell it to you. | You placed a caveat over the property. | The owner issued a summons for the removal of the caveat. | As the result of a court order, you were required to pay the legal costs of the owner of the property and counsel fees for one attendance to represent/assist you in your defence.