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Edited version of private advice
Authorisation Number: 1012654427982
Ruling
Subject: Legal expenses
Question
Are you entitled to a deduction for legal expenses, medical report and magistrate's fees?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You are an engineer and you had been informed that you were being made redundant. Your impending redundancy was very stressful for you.
An incident at work occurred to which you were later charged.
You defended the charge and you were placed on a good behaviour bond.
You incurred costs for a solicitor, medical report and magistrate's fees in defending the charge.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 provides that a loss or an outgoing is an allowable deduction if it is incurred in producing assessable income or in carrying on a business for the production of assessable income unless that loss or outgoing is capital or of a private or domestic nature.
The courts on a number of occasions have determined legal expenses to be an allowable deduction if the expenses arise out of the day to day activities of the taxpayer's business. The action out of which the legal expense arises has to have more than a peripheral connection to the taxpayer's business and the expense may arise out of litigation concerning the taxpayer's professional conduct.
You incurred legal expenses in defending a charge. The action from which the charge arose was not connected sufficiently with your work duties for the costs to be considered to be incurred in producing your assessable income.
Whilst we accept that the decision to make you redundant may have affected your mental state, this does not provide a sufficient nexus between the incident and your production of assessable income.
The expenses incurred for solicitor fees, a medical report and magistrate fees are not allowable deductions.