Private ruling: Legal expenses
Published: March 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for the legal fees you incurred? | A1: Yes.

Relevant facts and circumstances: You were an employee. Your department was downsizing and you feared that due to your irreconcilable differences with the head of your department your position would be made redundant. You approached a law firm to discuss your existing employment agreement to determine whether you could be made redundant given the circumstances. After reviewing the existing employment agreement you were advised that the case would be difficult and expensive and you did not take it any further. You incurred legal fees in relation to this matter. You received a formal notice of redundancy and your employment was later terminated.


Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature. Taxation Ruling TR 2000/5 examines the deductibility of costs incurred in preparing and administering employment agreements. The ruling states that certain costs incurred by an employee are an allowable deduction, those costs being: · costs of drawing up an employment agreement with an existing employer · costs of settling disputes arising from an existing employment agreement · costs of changing conditions of an existing employment agreement · costs of renewing or extending a fixed term agreement where there is a provision allowing for renewal or extension In your situation, you paid for legal advice to discuss and review the conditions of your existing employment contract. You engaged your legal representative to advise you regarding your position and whether you could be made redundant in the given circumstances. It is accepted that you incurred the expense in administering your employment agreement and in order to protect existing rights under the employment agreement. Therefore, you are entitled to a deduction for the legal expenses incurred.

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