Private ruling: Legal expenses
Published: February 2015
Ruling period: Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2013

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: Where legal costs are incurred to obtain income under an existing employment contract, the taxpayer will be entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 . You have taken legal action to obtain: • The bonus owing to you from the 2012-13 financial year, six months' notice period salary, unused annual leave and allowance available to you under your employment agreement but not paid to you during your employment (past economic loss), Compensation for past economic loss forms under your employment contract form part of your assessable income as they relate to your employment. The legal action was taken to enforce a contractual entitlement to various allowances, payment in lieu of notice and the previously accrued bonus payment under your employment agreement. Therefore, the legal expenses incurred to obtain these payments are deductible expenses.

Relevant facts: You were employed fulltime. | Your salary consisted of base salary and bonus. | The bonus is on a percentage of your salary, paid in lump sum in the next financial year. | Your employer terminated your employment in the relevant financial year giving you no notice period. | Based on your contract you were entitled to a bonus attributable to the 2012-13 financial year, six months' notice period salary, unused annual leave and various allowances. | There was a dispute with your employer regarding these entitlements | You hired a lawyer to obtain these entitlements. | You incurred legal expenses. | The entitlements were eventually paid. | The legal service incurred included negotiating termination terms, calculating correct entitlement amount, obtaining bonus, six months' notice period salary pay and unused leave.