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Edited version of your written advice
Authorisation Number: 1013139481441
Date of advice: 16 December 2016
Ruling
Subject: Deductibility of legal expenses
Question
Are you entitled to a deduction for legal expenses incurred?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June xxxx
The scheme commenced on
1 July xxxx
Relevant facts
You are employed on a full time permanent basis. You have been employed in this capacity since 20XX and have undertaken intermediate periods of higher duties throughout this time.
Your employment is conducted on terms that standards of professional conduct must be observed.
During a staff meeting allegations of inappropriate behaviour were raised by another staff member regarding your behaviour
The allegations were investigated and concluded that you had acted inappropriately towards another staff member.
You received formal advice that disciplinary action would follow.
You engaged the services of a legal firm to provide legal advice in relation to having the decision against you dismissed and to restore your reputation.
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.
When the principal reason for incurring the legal expenses is defending the actions of the taxpayer in carrying out their employment duties through which they gain or produce assessable income, such expenses are characterised as being of a revenue nature and are deductible (Inglis v. FC of T 87 ATC 2037; and Case V116 88 ATC 737; AAT Case 4502 (1988) 19 ATR 3703).
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 incurred legal expenses in defending yourself against criticism of your work practices. The evidence indicates that, in carrying out the actions that lead to the criticism, you were doing no more than executing your employment duties. Consequently, the legal expenses are an allowable deduction.