Private ruling: Legal expenses
Published: September 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 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. 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: You were charged with a criminal offence, which arose from a complaint made against you whilst in the execution of your duty. | You enlisted the services of a senior council as the charges put before the court were serious and required experienced and proven council. | You were found guilty and convicted of the offence. | You lodged an appeal which was granted and heard. | The matter was found not proven and as such all your grounds for appeal were successful and all charges dismissed after being found not guilty. | You incurred legal expenses in relation to these charges.