ATO Interpretative Decision

ATO ID 2002/692

Income Tax

Legal Expenses - defending a driving charge
FOI status: may be released
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for legal expenses incurred in defending a driving charge?


No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for legal expenses incurred in defending a driving charge.


The taxpayer's employment duties required them to drive a motor vehicle.

In the course of their employment the taxpayer was involved in a car accident.

As a result of this accident the taxpayer was found guilty of a dangerous driving charge. The taxpayer appealed and was found not guilty.

In the course of defending the charge the taxpayer incurred legal expenses.

The taxpayer was of the view that if they had not been acquitted of the charge they would have lost their driver's licence and their job.

Reasons for Decision

Section 8-1 of the 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 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] HCA 34; (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.

The taxpayer used their car on a day to day basis in the course of their employment and the legal expenses incurred in defending the dangerous driving charge arose as a consequence of the taxpayer's 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 taxpayer's business or employment, the taxpayer's reason for defending the charge was to enable them to maintain their driver's licence (right to drive) and as a consequence, their job.

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).

Accordingly, 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 the taxpayer incurred the legal expenses to enable them to maintain their 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.

Amendment History

Date of Amendment Part Comment
27 February 2015 Reasons for Decision Amend for clarity
Insert medium neutral citation: [1946] HCA 34
Case References Insert medium neutral citation: [1946] HCA 34

Date of decision:  5 April 2002

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1997
   section 8-1

Case References:
Hallstroms Pty Ltd v. Federal Commissioner of Taxation
   (1946) 72 CLR 634
   [1946] HCA 34
   (1946) 3 AITR 436
   (1946) 8 ATD 190

Case P55 / Case 109
   82 ATC 253
    (1982) 25 CTBR (NS) 824

Case Q99/ Case 27
   83 ATC 491
    (1983) 27 CTBR (NS) 163

Related Public Rulings (including Determinations)
Taxation Determination TD 93/108

Deductions & expenses
Legal action
Legal expenses

Siebel/TDMS Reference Number:  DW383818; 1-6DHIBFC

Business Line:  Small Business/Individual Taxpayers

Date of publication:  3 July 2002

ISSN: 1445-2782

  Date: Version:
  5 April 2002 Original statement
You are here 27 February 2015 Updated statement