Private ruling: Legal fees
Published: October 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

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 provides that a loss or an outgoing is an allowable deduction if it is incurred in producing 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. In your case, it is accepted that you were required to defend the way in which you discharged your employment duties. Consequently you are entitled to a deduction for legal expenses relating to this defence.

Relevant facts: Your current manager unexpectedly put you on a performance process. | Your manager had never spoken to you previously about your work performance prior to this time. | You have a record of working and performing well and meeting standard so you were not prepared for your manager's action which was very unfair and unreasonable. | Despite your strong results, in particular revenue, your manager was pushing you towards a performance management process. | Prior to this incident, you had never experienced performance management, so you became stressed and worried about the possible loss of your job, because you were asked to achieve x-x months of results in x months and in the midst of the global financial crisis. | You felt you were being discriminated and harassed so you sought legal advice and with your lawyers help you raised a grievance with your employer. | The matter was investigated and eventually your manager had to stop the process and you were allowed to work under normal conditions again.