Private ruling: Legal expenses deduction
Date of advice: 19 February 2018
Published: June 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for legal expenses incurred to try to resolve a workplace harassment issue? | A1: Yes. Section 8-1 of the Income Tax Assessment Act 1997 (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 determining whether a deduction for legal expenses is allowed, the nature of the expenditure must be considered. The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. If the advantage to be gained is of a capital nature, then the expenses incurred in gaining the advantage will also be of a capital nature. In your case, you were subject to harassment in the workplace. You incurred legal expenses in respect of action to cease the harassment and to have your leave entitlements repaid to you. As there is a direct connection between your legal expenses and the earning of assessable income, a deduction for the legal expenses you incurred is allowable.

Relevant facts and circumstances: You were subjected to harassment at your workplace. You raised the harassment directly with your employer however the harassment continued. You sought legal advice and representation to assist you with the issue. You also sought legal advice to have leave entitlements repaid to you. You incurred legal fees.