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Edited version of private ruling

Authorisation Number: 1011531355395

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Ruling

Subject: Legal expenses

Question

Are you entitled to a deduction for legal and travel expenses?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are an employee.

Allegations were made about the way you did your job.

You incurred car expenses travelling to and from your solicitor and also to receive and deliver paperwork relating to the allegations made against you.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 28

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a loss or an outgoing is an allowable deduction if it is incurred in producing assessable income or in carrying on a business for the production of assessable income unless that loss or outgoing is capital or of a private or domestic nature.

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. The action out of which the legal expense arises has to have more than a peripheral connection to the taxpayer's business and the expense may arise out of litigation concerning the taxpayer's professional conduct.

In FC of T v. Rowe (1995) 31 ATR 392; 95 ATC 4691, an employee incurred legal expenses in defending the manner in which he performed his employment duties.

The court accepted that such expenses were allowable and no significance was placed on the taxpayer's status as an employee.

You incurred legal expenses in defending allegations regarding your professional conduct. In carrying out the actions that led to the allegations, you were executing your employment duties. Consequently, the legal expenses incurred are an allowable deduction. Additionally, travel expenses relating to defending the allegations are likewise deductible.

Division 28 of the ITAA 1997 sets out the rules for working out deductions for car expenses. Subsection 28-12(1) of the ITAA 1997 states if you owned or leased a car, you can deduct for the car's expenses an amount or amounts worked out using one of the four methods. Those four methods are covered by Subdivisions 28-C, 28-D, 28-E & 28-F of the ITAA 1997.


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