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Edited version of private ruling
Authorisation Number: 1011491944443
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
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Ruling
Subject: legal expenses
Are you entitled to a deduction for legal expenses?
Yes.
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are employed by an educational institution.
You were subjected to defamatory comments by a student of the institution.
The defamatory comments were made directly to and about you and indirectly via videos uploaded onto the internet.
You believed that the situation was ineffectively managed by the educational institution.
You engaged a law firm to assist you with the removal of existing videos and prevention of further distribution and circulation of defamatory videos
Your solicitors were successful in this undertaking.
You incurred legal fees.
Reasons for decision
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.
Legal expenses are deductible provided the legal action:
· arose out of, or concerns the day to day income producing activities of the taxpayer (Herald and Weekly Times Ltd v. Federal Commissioner of Taxation (1932) 48 CLR 113; (1932) 2 ATD 169)
· is not undertaken to protect the taxpayer's profit-yielding subject
· have more than a peripheral connection to the taxpayer's business (Magna Alloys & Research Pty Ltd v. FC of T 80 ATC 4542; (1980) 11 ATR 276 (Magna Alloys); Putnin v. FC of T 91 ATC 4097; (1991) 21 ATR 1245 (Putnin))
· may arise out of litigation concerning the taxpayer's professional conduct (Magna Alloys and Putnin).
When the principal reason for incurring the legal expenses is defending the actions of the taxpayer in carrying out their employment duties through which they gain or produce assessable income, such expenses are characterised as being of a revenue nature and are deductible (Inglis v. FC of T 87 ATC 2037; and Case V116 88 ATC 737; AAT Case 4502 (1988) 19 ATR 3703).
You are an employee at an educational institution who incurred legal expenses in addressing defamatory comments made by a student. The situations which lead to the defamation arose during the course of carrying out employment duties through which assessable income is gained. Therefore, the legal expenses are an allowable deduction under section 8-1 of the ITAA 1997.
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