Private ruling: Legal expenses
Published: April 2015
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for your legal expenses in the income year in which the invoice is raised? | A1: Yes.

Relevant facts and circumstances: You are an employee. You were subject to a workplace dispute. You were unable to resolve the matter through the organisation you worked for, so you took the matter to an independent body You were concerned about the possibility of being dismissed as a result of the complaint, so you sought legal advice. You have incurred legal expenses. The workplace dispute is no longer an issue. You continue to work at the same organisation. You have not received any payment in relation to the matter.

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 (ITAA 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 allowable under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered. The nature or character of the legal expense follows the advantage that is sought to be gained by incurring the expenses. In your case you were subject to a workplace dispute. You were unable to settle the dispute with the organisation you worked for, so you took the matter to an independent body. Concerned about the possibility of being dismissed from your position as a result of your complaint, you sought legal advice. The legal action taken relates to your employment conditions and the implementation of workplace policies. It is considered that the dispute is sufficiently connected to your income earing activities as an employee and is not capital or private in nature. While you were not directly defending the way in which you performed your duties, you were seeking to restore the conditions and safe environment of your workplace and protect your employment. Accordingly, you are entitled to a deduction under section 8-1 of the ITAA 1997 for your legal expenses in the year of income in which the invoices are raised.