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Draft Taxation Determination

TD 92/D189 (Withdrawn)

Income tax: are legal expenses deductible by a taxpayer where they are incurred in defending actions brought for illegally conducting conveyancing in the course of carrying on a real estate business?

  • Please note that the PDF version is the authorised version of this draft ruling.
    This document has been Withdrawn.

FOI status:

draft only - for comment

Preamble

Draft Taxation Determinations (TDs) represent the preliminary, though considered, views of the ATO. Draft TDs may not be relied on; only final TDs are authoritative statements of the ATO.

1. Yes. The second limb of subsection 51(1) of the Income Tax Assessment Act 1936 allows a deduction for expenditure that is necessarily incurred in carrying on a business for the purpose of gaining assessable income.

2. In Magna Alloys & Research Pty Ltd v FC of T, 80 ATC 4542, legal costs incurred in defending a taxpayer's business methods were deductible, even though the nature of the activity was illegal.

Note: In this Determination "Legal Expenses" have the same meaning as that in subsection 64A(1).

Example:

Abel carries on a business as a real estate agent. He offers free conveyancing on property he sells. After a complaint, the Law Society brought a charge against him for performing conveyancing without a certificate from the Law Society. Abel incurred legal expenses of $2000 in defending the charge. Although his defence was unsuccessful he is entitled to claim $2000 as a deduction.

Commissioner of Taxation
29/10/92

References

ATO references:
NO TOW10

ISSN: 1038-8982

Subject References:
Legal Expenses
Illegal Activity
Allowable Deductions

Legislative References:
ITAA 51(1)
ITAA 64A(1)

Case References:
Magna Alloys & Research Pty Ltd v. FC of T
80 ATC 4542


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