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Edited version of private ruling
Authorisation Number: 1011533272246
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Ruling
Subject: Legal expenses
Question
Are you entitled to a deduction for legal expenses?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You were dismissed from your employer for whom you had worked for a long period on the grounds of redundancy.
You are taking legal action for unfair dismissal in an attempt to gain reinstatement to your former position.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or 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 or relates to the earning of exempt income.
In determining whether a deduction for expenses incurred in relation to your unfair dismissal claim is allowable under section 8-1 of the ITAA 1997, the nature of the expenses must be considered.
The nature or character of expenses follows the advantage that is sought to be gained by incurring the expenses (Hallstroms Pty Ltd v. FC of T (1946) 72 CLR 634; (1946) 8 ATD 190). If the advantage to be gained is of a capital nature, then the expenses incurred in gaining the advantage will also be of a capital nature.
The Commissioner of Taxation considers that expenses incurred in relation to an action for breach of a taxpayer's contract of employment, for example, an action for damages for wrongful dismissal, are capital in nature and not deductible (Taxation Determination TD 93/29).
In your case, you instigated action against your previous employer to seek reinstatement to your former position. As stated above, these expenses are considered to be capital in nature and as such, are not deductible.
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