Private ruling: Legal expenses
Published: April 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to claim a deduction for legal expenses? | A1: Yes.

Relevant facts and circumstances: An allegation was made against you at work. An independent investigator was appointed to investigate the allegation. You incurred legal expenses in appointing lawyers to represent you.

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

Reasons for decision: Summary: The legal expenses you incurred are deductible as they relate to defending the manner in which you perform your employment duties. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a capital, private or domestic nature. For legal expenses to constitute an allowable deduction it must be shown that they were incidental and relevant to the production of the taxpayer's assessable income ( Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR47; (1949) 4 AITR 236; (1949) 8 ATD 431). 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 or employment. The action out of which the legal expense arises has to have more than a peripheral connection to the taxpayer's business and the expenses may arise out of litigation concerning the taxpayer's professional conduct. You are an employee who has incurred legal expenses defending the manner in how you carry out the employment duties through which assessable income is obtained. Therefore, the expenses you incurred are deductible under section 8-1 of the ITAA 1997.