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Edited version of your written advice
Authorisation Number: 1051304416632
Date of advice: 30 November 2017
Ruling
Subject: Legal expenses
Question
Are you eligible to claim a deduction for legal expenses incurred?
Answer
Yes
This ruling applies for the following periods
Year ended 30 June 2017
Year ended 30 June 2018
The scheme commenced on
1 July 2016
You have been employed in a place of work.
Concurrent with your employment at the place in dispute you have also been employed at another workplace in the same capacity on a casual basis.
An APVO order was made out against you by a staff member. This order sought you to be absent from the workplace while the other staff member was there. This arose from an incident when you, as an OH&S officer, which at the time were in breach of the sections safety requirements.
You contend that you were attempting to carry out your duties as required by your employer and state workplace safety requirements, to ensure that you control and/or report workplace safety breaches to others supervising their trainees.
A few weeks later, the same staff member named you and others managing the training section in an application to the State Fair Work Commission, on grievances they had for some time.
The matter of the APVO was heard in district court, and the APVO was not granted against you, however the costs were not awarded to you, so they were a cost you had to meet.
You have since been successful in having your name removed from the Fair Work Commission case.
Since that time you have sought to resume work at the workplace but have not worked there for over 10 months.
You have continued to work at the other workplace on a casual basis.
You have since been successful in having your name removed from the Fair Work Commission case.
The court has ruled that the complainant pay for part of your court costs, so you remain liable to pay some of your costs.
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
In determining whether a deduction for legal expenses is allowed under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered (Hallstroms Pty Ltd v. FC 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.
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 income producing activities of the taxpayer (The Herald and Weekly Times Ltd v. FC of T (1932) 48 CLR 113). The action out of which the legal expense arises has to have more than a peripheral connection to the taxpayer's business or income earning activities. The expense may arise out of litigation concerning the taxpayer's professional conduct (Magna Alloys and Research Pty Ltd v. FC of T (1980) 11 ATR 276; 80 ATC 4542; Putnin v. FC of T (1991) 21 ATR 1245; 91 ATC 4097).
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).
In your case the legal expenses have arisen out of a need to defend your actions in carrying out your income-producing employment activities, being you carrying out your duties according to your state workplace safety requirements. Therefore the expenses involved will be deductible.