Private ruling: Deductions - legal expenses
Date of advice: 31 January 2025
Published: 24 March 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)for your legal expenses incurred to date? | A1: Yes. Taxation Ruling TR 2000/5 Income tax and fringe benefits tax: costs incurred in preparing and administering employment agreements (TR 2000/5), sets out the Commissioner's view of the application of section 8-1 of the ITAA 1997 to costs incurred by employees and employers in preparing and administering employment agreements. Paragraph 12 of TR 2000/5 provides that both the employer and employee may incur expenses in setting the conditions for and administering the employee agreement. These may include costs associated with the settlement of disputes arising out of an existing employment agreement, including the costs of legal representation which are an allowable deduction. In your case, you sought legal advice and incurred the legal expenses to safeguard your employment from possible dismissal. We accept the legal expenses incurred by you are not private or capital in nature. Therefore, the legal expenses you have incurred to date are an allowable deduction.

Relevant facts and circumstances: You are currently employed by Company X (your employer). You commenced employment in MM 20XX in the role of X. During 20 XX a workplace dispute arose between you and your employer. Further, during 20XX, a series of events occurred in the workplace which resulted in you seeking legal advice about the ongoing workplace dispute. On DD MM 20XX, you engaged legal representation. Your intention when you sought legal advice on DD MM 20XX was to protect and maintain your employment. You incurred fees of $X for the initial consultation. On DD MM 20XX you made a payment of $X to your lawyer for anticipated legal fees. These monies were held in trust. On DD MM 20XX, you received an invoice for $X for professional fees. On DD MM 20XX, you entered into a costs agreement with your lawyer for $ X: • $ X to be invoiced on the date when the agreed works are completed. • $X to be invoiced at a later date as specified in the costs agreement. All monies have now been applied to your matter. You have provided us with copies of the correspondence between you and your employer: You have not sought nor received a settlement amount from your employer. You have made no attempt to collect or seek to recover these costs. You do not have professional indemnity insurance.

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