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Edited version of your written advice
Authorisation Number: 1012676638247
Ruling
Subject: Legal expenses
Question
Are you entitled to a deduction for legal expenses?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You were an employee.
Allegations were made that you had incorrectly supplied information so that you could claim a travel allowance, thereby breaching the standards of conduct policy.
After the investigation into the allegations, it was found that they were substantiated.
You sought legal advice to provide a written response to the findings.
It was subsequently found that the allegations were not substantiated and the findings letter was withdrawn.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 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, or relate to the earning of exempt income.
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 (1980) 49 FLR 183; (1980) 11 ATR 276; 80 ATC 4542).
Similarly, in FC of T v. Day [2008] HCA 53 and FC of T v. Rowe (1995) 31 ATR 392; 95 ATC 4691, the courts accepted that legal expenses incurred in defending the manner in which a taxpayer performed his employment duties were allowable. No significance was placed by the court on the taxpayer's status as an employee.
You were defending allegations of having breached the standards of conduct policy and you were exposed to the allegations by reason of your office. Likewise, the requisite connection with your assessable income is present.
Therefore, you are entitled to a deduction for legal expenses.