Private ruling: Deductions - legal expenses
Date of advice: 1 December 2025
Published: 27 January 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

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

Relevant facts and circumstances: You work as a supervisor. You are employed full-time. Your normal work hours are from the afternoon to the late evening. You have provided a list of your employment duties. When you started your employment, you were told by your manager that you had to do a sleepover shift after every paid shift from the completion of your shift until the next morning. This was in case anybody required your assistance throughout the night. The requirement to stay overnight after your shift wasn't mentioned in your contract. However, you assumed that you would be being paid for sleeping overnight. You discovered that you weren't being paid for the overnight shifts and began discussions with your employer regarding payment. If you were woken up during the night, you would receive several hours of time in lieu. If you accrued enough time, you would get a day off. Discussions to resolve the issue with your employer were unsuccessful so you hired legal representation. You were advised by your employer that they couldn't pay you an allowance as the enterprise agreement didn't allow them to pay you. You were also advised that your employer was putting together a submission together to allow you to get an allowance for the new enterprise agreement. When the new agreement commenced and there was no change, you hired legal representation and started a grievance process. You lodged a case with the Fair Work Commission to deal with your dispute in accordance with a dispute settlement procedure under section 739 of the Fair Work Act 2009. Section XX of the enterprise agreement is the relevant section of the enterprise agreement you are employed under. This section does not contain a provision for a sleepover allowance in this section despite there being an allowance in the Agreement for all other staff employed by your employer. A hearing took place to determine whether you could resolve the issue by conciliation. A further hearing was scheduled at the Fair Work Commission. However, you filed a Notice of Discontinuation and the hearing did not go ahead. You discontinued proceedings as you could not afford to continue the action. You drafted a letter to your employer stating that you were refusing to continue to perform sleepover shifts unless they paid you back for the sleepover shifts you had not been paid for. At around this time, your employer sent a Human Resources person to create your job description. Despite your concerns that you may be fired for refusing to continue the sleepover shifts, your employer was unable to terminate your employment. Your immediate supervisor was made to do the sleepover shifts. Within several weeks your employer had advertised for a full-time stay awake night X position.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 15-2

Reasons for decision: Summary: You can claim a deduction for the legal expenses you incurred under section 8-1 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a deduction is available for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except to the extent the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. To be able to claim a deduction for legal expenses, you must show that the expenses were incidental or relevant to the earning of your assessable income ( Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 4 AITR 236; (1949) 8 ATD 431). 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). The nature or character of the legal expense will follow the advantage that is being sought. If the advantage to be gained is of a revenue nature, then the expenses incurred in gaining the advantage will also be of a revenue nature. Paragraph 12 of Taxation Ruling TR 2000/5 Income tax and fringe benefits tax: costs incurred in preparing and administering employee agreements confirms that where legal expenses are incurred to settle disputes arising out of an existing employment agreement, the taxpayer will be entitled to a deduction under section 8-1 of the ITAA 1997. Section 15-2 of the ITAA 1997 provides that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force). ATO Interpretative Decision ATO ID 2002/232 Income Tax Assessability of a sleepover allowance paid to a care worker confirms that an allowance paid as compensation for the inconvenience suffered as a result of spending the nightaway from your usual residence is included in your assessable income. | Detailed Reasoning - Application to your circumstances: You have incurred legal expenses in relation to a dispute with your employer over the payment of a sleepover allowance. Section 15-2 of the ITAA 1997 confirms that an allowance paid to you in respect of your employment is included in your assessable income. As you have incurred legal expenses in an attempt to have a dispute over the sleepover allowance resolved, the expenses have the requisite connection to the earning of your assessable income. Therefore, you can claim a deduction for the legal expenses you incurred under section 8-1 of the ITAA 1997.