Private ruling: General deductions - capital vs revenue expenditure
Date of advice: 23 October 2025
Published: 8 December 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: X 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: The Commissioner considers that the legal expenses incurred are sufficiently connected with your income earning activities. Salary and wages are assessable income; therefore, the associated legal expenses sufficiently relate to earning assessable income is revenue and not capital in nature. You incurred deductible legal expenses to recover unpaid wages. Therefore, the expenses relating to wages and not capital compensation are deductible under section 8-1 of theITAA 1997.

Relevant facts and circumstances: You started working for XXX Pty Ltd on XX/XX/20XX as a contractor. On XX/XX/20XX, you were dismissed effective date of the email received on the XX/XX/20XX. From XX/XX/20XX to XX/XX/20XX, the performance plan for XX weeks was required to assess your performance. You have provided the application sent to the Fair Work Commission seeking: Reinstalment, with an order that the continuity of service is maintained and payment for all remuneration not paid due to the termination up to and until the date of reinstatement pursuant to section 391 of the Fair Work Act 2009 (Cth) (FW Act): and /or compensation pursuant to section 390 of the FW Act. All costs were incurred in the 20XX financial year solely for the unfair dismissal proceedings. No costs relate to personal injury claims, capital maters or new employment contract. You are not being reimbursed for the legal cost. You do not have income protection insurance policy. You are an Australian resident for tax purpose for the 20XX financial year (FY). Timeline: November 20XX - Commenced work at a site via labour hire company. XX/XX/20XX - Commercial full-time employment with XXX Pty Ltd as Carpentry Tradesperson under XXX Agreement 2021-2025. XX/XX/20XX - Sustained back injury; requested light duties. XX - XX/XX/20XX - Complaint lodged with the superintend about the alleged bullying. XX - XX/XX/20XX - Personal leave for injury recovery and workplace stress with Workcover medical certificates. XX/XX/20XX - Returned to work: placed on a six-week performance improvement plan (PIP) schedule to run to XX/XX/20XX. XX/XX/20XX - Signed PIP and returned it to supervisor. XX/XX/20XX - Raised further bullying concerns with IR representative, obtained a copy of the PIP and discussed diary - keeping for PIP process. Late XXXX - XXXX 20XX - No weekly PIP review meetings were held; received positive informal feedback from supervisors. XX/XX/20XX - Requested to attend a Teams meeting during a rostered day off: unable due to personal responsibilities: asked for urgent matters by email. XX/XX/20XX - Received a termination letter by email: employment ended immediately: three weeks' pay in lieu of notice period provided: return flights to site cancelled. XX/XX/20XX - Lodged Form F2 - Unfair Dismissal Application with Fair Work Commission under s394 Fair Work Act 2009. XX/XX/20XX - XX/XX/20XX - Incurred legal expense with the legal firm for representation in the unfair dismissal proceedings and settlement negotiations. Nature of the dispute: Allegations: premature termination before PIP completion; breach of disciplinary procedures; failure to address bullying; termination harsh, unjust, unreasonable. Remedies sought - reinstatement (s.391 FW Act) and/or compensation for lost remuneration (s.390 FW Act).

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