Private ruling: Legal expenditure
Date of advice: 12 November 2019
Published: January 2020
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the legal fees that were incurred by you in defence of a civil action brought by the Commissioner of Taxation in the Magistrate's Court deductible? | A1: Yes. Subsection 25-5(1) of the Income Tax Assessment Act 1997 allows you to claim legal expenditure for defending as a cost of managing tax affair's. Defending a civil action brought by the Commissioner of Taxation under Schedule 1 to the Taxation Administration Act 1953 section 255-5 to recover unpaid income tax is included in this section. Only the fees in excess of the compensation can be claimed.

Relevant facts and circumstances: The Commissioner of Taxation instigated legal action against you for non-lodgement of tax returns, the proceedings were heard at the Magistrate's court. The court case was dismissed late in 20XX. The Magistrate included a compensation payment from the Commissioner to the client for reasonable estimate of legal fees. Legal fees for the case totalled significantly more than the compensation payment.

Relevant legislative provisions: Income tax Assessment Act 1997 subsection 25-5(1)