Private ruling: Residency
Date of advice: 23 January 2023
Published: 6 March 2023
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XXX

Ruling: Q1: Are you entitled to a deduction for legal expenses for having fines removed from your record? | A1: No.

Relevant facts and circumstances: You are a driver. You received a fine while working as a driver. Due to an administrative error the fines were duplicated on the system. You had to seek legal assistance to have the fines removed. If you had not got the legal assistance, you would have lost your license and subsequently lost your job.

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

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act (ITAA 1997) allows a deduction for a loss or outgoing to the extent to which it is incurred in gaining or producing your assessable income except where the loss or outgoing is a capital or private nature. In determining whether a deduction for legal expenses is allowable, the nature of the expenditure must be considered ( Hallstroms Pty Ltd v. Federal Commissioner of Taxa tion (1946) 72 CLR 634;(1946) 3 AITR 436;(1946) 8 ATD 190). The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. If the advantage to be gained is of a private nature, then the expenses incurred in gaining the advantage will also be of a private nature. In your case, you are a driver and the legal expenses incurred in defending the fines arose as a consequence of your employment activities. Whilst the courts on a number of occasions have determined legal expenses to be an allowable deduction if the expenses arise out of the day-to-day activities of the person's business or employment, it is considered that your reason for seeking legal assistance was primarily to enable you to avoid demerit points being added to your driver's licence, which could have impacted on your right to drive. The right to drive on public roads does not cease to be a private right merely because the taxpayer is employed in some capacity which involves the use of the public road system (Taxation Determination TD 93/108). As explained in ATO Interpretive Decision 2002/692, legal expenses are of a private nature if they are incurred to protect a taxpayer's right to drive a car, even if their employment requires them to hold a driver's licence ( Case P55 82 ATC 253; (1982) 25 CTBR (NS) Case 109 and Case Q99 83 ATC 491; (1983) 27 CTBR (NS) Case 27 ). As you incurred the legal expenses in relation to a fine relating to your driver's licence, the expenses are private in nature. Therefore, the legal expenses are not an allowable deduction under section 8-1 of the ITAA 1997.