Private ruling: Deductions - Legal Expenses
Date of advice: 9 March 2016
Published: April 2016
Ruling period: 1 July 2014 to 30 June 2015

Ruling: Questions and answers: | Are the legal expenses you have incurred tax deductible? | Yes

Relevant facts and circumstances: You sought legal advice as you were being harassed at work. You are still in the process of settling this matter with your employer and have not received any compensative amount as of yet. You incurred in legal fees.

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 (ITAA 1997) provides that a loss or an outgoing is an allowable deduction if it is incurred in producing assessable income or in carrying on a business for the production of assessable income unless that loss or outgoing is capital or of a private or domestic nature. As stated in ATO Interpretive Decision ATO ID 2001/27: Legal expenses are generally deductible if they arise out of the day to day activities of the taxpayer's business (Herald and Weekly Times Ltd v. Federal Commissioner of Taxation (1932) 48 CLR 113; (1932) 39 ALR 46; (1932) 2 ATD 169) and the legal action has more than a peripheral connection to the taxpayer's income producing activities ( Magna Alloys and Research Pty Ltd v. FC of T (1980) 49 FLR 183; (1980) 11 ATR 276; 80 ATC 4542). The legal expenses arose from your day to day employment activities and are directly relatable to the production of assessable income. This is because the harassment occurred in your place of work on a daily basis. The expenses are not capital in nature and thus are deductible under section 8-1.