| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012060564645
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.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Legal expenses
Question:
Can you claim a deduction for legal expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer: Yes.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
Your income earning activities are the leasing of commercial business premises.
During the 2010-11 financial year, you leased one of your properties.
The tenant failed to make a number of rent payments and became in arrears for a significant amount of money.
After failed attempts to have the tenant bring the rent up to date, the tenant was evicted under the terms of the lease.
The tenant has since disputed the eviction and is seeking compensation for lost earnings and damages.
You have incurred legal fees during the 2010-11 financial year in relation to the legal action.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 8-1
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.
Legal expenses incurred in relation to a rental property may be allowable under section 8-1 of the ITAA 1997, where a connection between the expense and the production of assessable income exists. Generally, expenses of this nature are allowable in situations where the expense is incurred to evict non-paying tenants and/or recovering unpaid rent. Similarly, legal expenses incurred to defend claims lodged by former tenants in relation to an eviction would be an allowable deduction.
In your case, you have incurred legal expenses in the 2010-11 financial year to defend a damages claim lodged by a former tenant as a result of an eviction for non-payment of rent, under the terms of the lease.
These legal expenses were incurred in your capacity as landlord of the rental property. The expenses arose as a result of letting of the premises for the purposes of producing assessable income and there is a clear connection between the legal expenses and the production of rental income. Therefore, the legal fees are an allowable deduction under section 8-1 of the ITAA 1997.