| Disclaimer This edited version has been archived due to the length of time since original publication.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 written advice
Authorisation Number: 1012779163825
Ruling
Subject: Legal expenses
Question
Are you entitled to a deduction for legal expenses?
Answer:
Yes
This ruling applies for the following period
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commenced on
1 July 2013
Relevant facts
You were employed fulltime.
Your salary consisted of base salary and bonus.
The bonus is on a percentage of your salary, paid in lump sum in the next financial year.
Your employer terminated your employment in the relevant financial year giving you no notice period.
Based on your contract you were entitled to a bonus attributable to the 2012-13 financial year, six months' notice period salary, unused annual leave and various allowances.
There was a dispute with your employer regarding these entitlements
You hired a lawyer to obtain these entitlements.
You incurred legal expenses.
The entitlements were eventually paid.
The legal service incurred included negotiating termination terms, calculating correct entitlement amount, obtaining bonus, six months' notice period salary pay and unused leave.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Where legal costs are incurred to obtain income under an existing employment contract, the taxpayer will be entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997.
You have taken legal action to obtain:
• The bonus owing to you from the 2012-13 financial year, six months' notice period salary, unused annual leave and allowance available to you under your employment agreement but not paid to you during your employment (past economic loss),
Compensation for past economic loss forms under your employment contract form part of your assessable income as they relate to your employment. The legal action was taken to enforce a contractual entitlement to various allowances, payment in lieu of notice and the previously accrued bonus payment under your employment agreement. Therefore, the legal expenses incurred to obtain these payments are deductible expenses.