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Authorisation Number: 1012412604543

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Ruling

Subject: Legal expenses

Question

Are you entitled to a deduction for legal expenses in defending your workplace rights and reinstatement of your workplace position?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You have been employed for a number of years.

You took leave from work with a work related injury.

As the result of your injury, you were advised by your doctor not to return to work on shift as it would exacerbate your injury.

When you returned to work you were deployed to another role.

You subsequently applied for and were appointed to a permanent position.

You are trained in a specific field and you used this qualification to work on projects where you received very positive feedback and accolades from management.

You made complaints and/or inquiries in relation to your employment.

You were directed to attend a meeting during which you were advised that you were being stood down from duties pending an assessment.

You attended the assessment and it was confirmed that you were fit to continue in your current role.

You remained stood down from duties and have been receiving your base salary but not being paid allowances.

You lodged a claim with an authority which was not resolved.

You are seeking to be reinstated to the position you won in a competitive process.

Your claim is currently listed before the court and a trial date is unlikely before the second half of this year.

You allege that your employer is now in breach of sections of the Workers Act in regards to your workplace rights and your rights under your current Enterprise Agreement. These contraventions include:

· General protection of workplace rights

· General protection with regards workplace complaints

· Offense to prejudice position

· Offense to discriminate (disability)

· Contravention of enterprise bargaining agreement

You have incurred additional legal expenses in relation to the above breaches and in defending your workplace rights, seeking lost financial entitlements, re-instatement to your workplace position and other compensation.

Other compensation may consist of all or any of the following: lost overtime, fines from any proven breaches that may be payable to you at the courts discretion and compensation for pain, suffering and humiliation.

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 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.

For legal expenses to constitute an allowable deduction, it must be shown that they are incidental or relevant to the production of the taxpayer's assessable income or business operations. Also, in determining whether a deduction for legal expenses is allowable under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered (Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; (1946) 3 AITR 436; (1946) 8 ATD 190). The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. 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.

Legal expenses are generally deductible if they arise out of the day to day activities of the taxpayer's business (Herald and Weekly Times Ltd v. Federal Commissioner of Taxation (1932) 48 CLR 113; (1932) 39 ALR 46; (1932) 2 ATD 169) and the legal action has more than a peripheral connection to the taxpayer's income producing activities (Magna Alloys and Research Pty Ltd v. FC of T 80 ATC 4542; (1980) 11 ATR 276).

In FC of T v. Rowe (1995) 31 ATR 392; 95 ATC 4691, the taxpayer, an employee, was suspended from normal duties and was required to show cause why he should not be dismissed after several complaints were made against him. A statutory inquiry subsequently cleared him of any charges of misconduct or neglect. The court accepted that the legal expenses incurred by the taxpayer in defending the manner in which he performed his duties, in order to defend the threat of dismissal, were allowable. Since the inquiry was concerned with the day to day aspects of the taxpayer's employment, it was concluded that his costs of representation before the inquiry were incurred by him in gaining assessable income.

In your situation, you incurred legal expenses in relation to your workplace rights and being reinstated to the position you had been undertaking and that you had won in a competitive process. The associated legal expenses were a consequence of defending your rights to perform the duties of the role. It is considered that your legal expenses are a consequence of your day to day activities as an employee from which you derived assessable income. Therefore the associated legal expenses are deductible under section 8-1 of the ITAA 1997.