Private ruling: Legal expenses
Published: October 2014
Ruling period: Year ended 30 June 2014
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: Section 8-1 of the Income Tax Assessment Act 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, or relate to the earning of exempt income. In determining whether a deduction for legal expenses is allowed under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered ( Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; (1946) 3 AITR 436; (1946) 8 ATD 190). Legal expenses are generally deductible if the expenses arise out of the day to day activities of the taxpayer's business ( Herald and Weekly Times Ltd v. Federal Commissioner of Taxation (1932) 48 CLR 113; (1932) 39 ALR 46; (1932) 2 ATD 169) and the legal action has more than a peripheral connection to the taxpayer's income producing activities ( Magna Alloys and Research Pty Ltd v. FC of T (1980) 49 FLR 183; (1980) 11 ATR 276; 80 ATC 4542). In your case, the advantage sought was the recovery of an amount on revenue account, that is, unpaid shift allowances, long service leave and annual and sick leave. As such, the character of the expenditure is also of a revenue nature. Accordingly, you are entitled to a deduction for legal expenses.

Relevant facts: You were injured at work and were placed on worker's compensation. | The payments you received did not include shift allowances as was your entitlement. | You returned to work to a lower paid position as part of a return to work condition. | You sought legal advice to get your entitlements which include shift allowances, long service leave and annual and sick leave.