Private ruling: Legal expenses
Date of advice: 13 October 2017
Published: February 2018
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a deduction for legal expenses? | A1: Yes

Relevant facts and circumstances: You were the subject of disciplinary proceedings brought by your employer. Your employer made a finding that you had breached discipline and transferred you to a different area. This resulted in a financial disadvantage as you had to find and finance your own rental accommodation and you would not be eligible to accrue paid study leave, only available to certain areas. Your employer disclosed to your relevant registration board that you had engaged in ‘serious misconduct’. This could have had implications for you continuing to be able hold registration in your profession. You applied to the Fair Work Commission for an anti-bullying order. You then commenced Relevant Court action seeking an specific order. You were successful and obtained an injunction that restrained your employer from transferring you until this matter is heard. You are currently awaiting the handing down of the judgement and have incurred legal fees.

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 allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature. For legal expenses to constitute an allowable deduction, it must be shown that they were incidental or relevant to the production of your assessable income. Also, in determining whether a deduction for legal expenses is allowable, the nature of the expenditure must be considered. The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. In your case, it is accepted that you were required to defend yours employment duties. Consequently you are entitled to a deduction for legal expenses relating to this defence.