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This edited version has been archived due to the length of time since original publication.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: 1012306471043

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Ruling

Subject: Legal expenses

Question

Are you entitled to claim a deduction for legal expenses relating to an employment contract dispute?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You are employed on a full-time basis.

You manage a facility.

You accepted your position on the basis that funding for your facility would be supplied for a number of years.

During the 2010-11 financial year you were told the funding for your facility was 'running out' due to insufficient funds originally being raised.

This has resulted in a reduction of activities undertaken and personnel.

You sought legal advice regarding:

    · your employment position and if you could be made redundant as a result of the reduction in activities being undertaken

    · the funding of the facility which was a condition of your employment contract

    · your personal pay scales and classification.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

You are entitled to claim a deduction for legal expenses, because the expenses were incurred in obtaining advice about your rights and entitlements under an existing employment agreement.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for a loss or an 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.

Taxation Ruling TR 2000/5 examines the deductibility of costs incurred in preparing and administering employment agreements. The ruling states that certain costs incurred by an employee are an allowable deduction, those costs being:

    · costs of drawing up an employment agreement with an existing employer

    · costs of settling disputes arising from an existing employment agreement

    · costs of changing conditions of an existing employment agreement

    · costs of renewing or extending a fixed term agreement where there is a provision allowing for renewal or extension

In your situation, you paid for legal advice to interpret your rights and entitlements under the conditions of your existing employment contract. You engaged your legal representative to advise you regarding your position and pay scale and funding for the facility which formed part of your contract.

It is accepted that you incurred the expense in administering your employment agreement and in order to protect existing rights under the employment agreement. Therefore, you are entitled to a deduction for these legal expenses.


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