Private ruling: Legal expenses
Date of advice: 3 March 2026
Published: 4 May 2026
Ruling period: Period end date 30 June 20XX | Period end date 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the legal fees paid by the client in defence of their employment deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You (the taxpayer) were the subject of a workplace relations investigation in XXX 20XX at which time you were forced to work from home or take paid leave. Prior to the investigation you had a long, unblemished track record across several organisations and senior leadership roles as well as a reputation for integrity, research, teaching excellence, and championship of workplace culture. The allegations stemmed from concerns you had previously raised with your supervisor about a toxic workplace culture which including the undermining of X of your work colleagues as well as yourself. The allegations led to you making formal allegations about colleagues that you had previously reported, and you also claimed that the allegations were vexatious. X other work colleagues came forward to formalise their own complaints about members of the work team. You were supported by an Industrial Relations Officer in your workers' union. You were also supported by your formal mentor from Workplace X Workplace X reached a determination of serious misconduct against you and gave you a final warning but failed to provide evidence as to how this determination was reached. This led to the workers' union advising Workplace X that their findings were in breach of the Enterprise Bargaining Agreement (the 'EBA'). The union also repeatedly questioned the investigations/reporting team about numerous irregularities and errors in the findings, but explanations were not provided. At this point, both the union and your support person advised you to retain a lawyer - you subsequently engaged Law Firm A. The lawyer put Workplace X on notice that it was in breach of the EBA for failing to provide you with evidence of the allegations and for failing to call witnesses that had evidence of concerns that you had raised which precipitated the vexatious allegations against you. In 20XX, shortly after the preliminary finding had been handed down, you were informed by workplace investigations that they would not be formally investigating your complaints, although they acknowledged that the workplace was toxic and that senior leadership failed to escalate your concerns to Human Resources. You were then offered an impartial review of the preliminary finding of serious misconduct, but you state that this process only served to 'rubber stamp' Workplace X's initial findings. At this point, you met with your lawyers and the union to work out a strategy addressing the fact that you no longer felt safe returning to the workplace which resulted in a filing of a bullying application to Fair Work against Workplace X. The matter went into conciliation for several months following which Workplace X agreed to provide an independent preliminary review of your complaints, resulting in a downgrading of their original findings to a provisional determination of misconduct. A formal warning was subject to the outcome of the independent investigation of your complaints. Workplace X also agreed to conduct a health and safety audit in consultation with you, before you returned to on-site work. You engaged legal counsel to ensure that you could return to your onsite workplace and maintain your professional reputation which relate to your ability to continue to earn income from your current employer. To date, you have incurred legal expenses which are broken down into $XX incurred prior to 30 June 20XX and $XX incurred after 30 June 20XX. You advised that these expenses were incurred solely to save your job once the serious misconduct finding was handed down from Workplace X, and then to take the matter to Fair Work. You advised that the matter is ongoing as you are fighting to restore your reputation and to ensure the workplace is safe for you to return to, and that after many months you still do not feel safe enough to return to work. You have been supported by a union representative in relation to restoring your reputation and ensuring a safe workplace to return to, and you have not incurred legal expenses for this part of the process.

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