Private ruling: Legal expenses
Published: July 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
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 allows a person to claim a loss or outgoing that is incurred in gaining or producing assessable income so long as the loss or outgoing is not of a capital, private or domestic nature. In determining whether a deduction for legal expenses is allowed under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered: Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634, (1946) 3 AITR 436; (1946) 8 ATD 190. 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. You incurred legal expenses in order to recover unpaid wages. Even though you were unsuccessful in recovering any of the wages owing to you, the expense was incurred to recover income that would have been assessable. Accordingly, you are entitled to a deduction for legal expenses.

Relevant facts: You incurred legal expenses in an attempt to recover unpaid wages. | Your solicitor advised you to take no further action after your employer went into liquidation. | You were unsuccessful in getting any payment.