Private ruling: Legal expenses and interest expenses
Published: September 2012
Ruling period: Year ending 30 June 2013 | Year ending 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to claim a deduction for your legal expenses? | A2: 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 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, 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, you are seeking legal advice to rectify what you believe to be breaches of your workplace agreement which resulted in an adverse work performance evaluation in relation to your day to day employment duties. Therefore, you would be entitled to a deduction for the legal expenses and costs you incurred in relation to this action under section 8-1 of the ITAA 1997. Taxation Ruling TR 95/25 considers the deductibility of interest. Whether interest has been incurred in the course of producing assessable income generally depends on the use to which the borrowed funds have been put. As discussed above, legal expenses incurred in relation to your day to day employment duties would be considered to have been incurred in gaining or producing your assessable income. Therefore, any interest expenses incurred in relation to the legal expenses would also be deductible under section 8-1 of the ITAA 1997.

Where the legal expenses are paid using credit facilities, such as loans or credit cards, will interest payments be deductible? | Relevant facts: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | · your application for private ruling which have we received. | You have been with your current employer for over 20 years. | You are currently seeking legal advice in relation to what you believe to be breaches of your workplace agreement which resulted in an adverse work performance evaluation. | You have, and will continue to, incur legal expenses in relation to this advice. | You may need to use credit facilities, such as loans or credit cards, to pay the legal expenses.