Private ruling: General deductions - capital vs revenue expenditure
Date of advice: 13 October 2023
Published: 20 November 2023
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to claim a deduction for legal expenses incurred under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. The Commissioner considers that the legal expenses incurred in defending your employment income is deductable. You incurred legal expense to recover unpaid wage. Salary and wages are assessable income; therefore, the associated legal expenses sufficiently relate to earning assessable income is revenue and not capital in nature.

Relevant facts and circumstances: You began employment with employer X. You were employed from XX/XX/20XX until your termination. You were employed as X for over XX years. On XX/XX/20XX, you behaved aggressively and in a threatening manner towards A and B. On XX/XX/20XX you were terminated as a disciplinary action. There was a show cause process where you were asked to respond to the disciplinary action. You engaged solicitors in response to the show cause process and to show why your employment should not be terminated in circumstances where you were contravening without reasonable excuse, a standard of the XX code of conduct. On XX/XX20XX, you contended that the termination was harsh, unjust, and unreasonable pursuant to the XX ACT and you filed an application of reinstatement. On XX/XX/20XX the XX Commission required the XX to reinstate you because the termination was an inappropriate action. On XX/XX/20XX, you were reinstated to your former position and your continuity of service was maintained. The respondent is required to pay you the remuneration lost, considering the income earned through employment during the relevant period. You incurred legal expenses for engaging your solicitors. You have professional indemnity insurance, and this cover is capped at XX% of the legal costs.

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