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

Ruling: Q1: Are you entitled to a deduction for expenses for an Advocate? | 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. You incurred expenses in defending allegations of bullying towards staff. In carrying out the actions that led to the allegations, you were executing your employment duties. Consequently, the legal expenses incurred are an allowable deduction.

Relevant facts: You were employed by a local council. | Allegations of bullying and rudeness were made against you. | You sought legal advice to challenge the allegations and commenced legal action.