Private ruling: Legal expenses
Published: January 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Can you claim a deduction for legal expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: 


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

Reasons for decision: Summary: Section 8-1 of the 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. Legal expenses incurred in relation to a rental property may be allowable under section 8-1 of the ITAA 1997, where a connection between the expense and the production of assessable income exists. Generally, expenses of this nature are allowable in situations where the expense is incurred to evict non-paying tenants and/or recovering unpaid rent. Similarly, legal expenses incurred to defend claims lodged by former tenants in relation to an eviction would be an allowable deduction. In your case, you have incurred legal expenses in the 2010-11 financial year to defend a damages claim lodged by a former tenant as a result of an eviction for non-payment of rent, under the terms of the lease. These legal expenses were incurred in your capacity as landlord of the rental property. The expenses arose as a result of letting of the premises for the purposes of producing assessable income and there is a clear connection between the legal expenses and the production of rental income. Therefore, the legal fees are an allowable deduction under section 8-1 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: Your income earning activities are the leasing of commercial business premises. | During the 2010-11 financial year, you leased one of your properties. | The tenant failed to make a number of rent payments and became in arrears for a significant amount of money. | After failed attempts to have the tenant bring the rent up to date, the tenant was evicted under the terms of the lease. | The tenant has since disputed the eviction and is seeking compensation for lost earnings and damages. | You have incurred legal fees during the 2010-11 financial year in relation to the legal action.