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Edited version of your written advice
Authorisation Number: 1051423303249
Date of advice: 4 September 2018
Ruling
Subject: Legal expenses and settlement costs
Question
Are you entitled to a deduction for your legal expenses and settlement costs?
Answer
Yes
Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of 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.
Your legal expenses are not considered to be private in nature as they were related to an issue that arose while carrying out your employment position. That is, the legal action arose as a result of your employment.
Accordingly, the legal expenses you incurred and the settlement sum you paid have the requisite connection to your income earning activities and you are entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are a contract manager.
You were engaged by xxxx to manage their xxxx properties in xxxx.
The properties have an area of xxxx. The properties grow xxxx are grown.
Your role as xxxx involved the xxxx.
You have minimal involvement from the managers of xxxx. But, you speak to them regularly by telephone and provide them monthly xxxx reports and any additional information they request. They rarely visit xxxx.
You engaged the services of contract xxxx.
xxxx were breaking down on a regular basis which caused delays xxxx.
You advised xxxx you would be engaging xxxx as production was behind due to xxxx.
You made the decision to engage xxxx would have suffered considerable financial loss.
If the xxxx were xxxx in time losses would be caused xxxx.
A Statement of Claim dated xxxxwas filed by xxxx xxxx for loss and damages due to breach of the agreement.
The statement of claim xxxx. The Plaintiffs are claiming xxxx for loss and damages for xxxx not completed by them.
xxxx would not indemnify you for your decisions as xxxx manager.
You engaged legal practice xxxx.
You filed a Defence and Cross Claim on xxxx.
On xxxx Mediation was held between the Plaintiffs, xxxx and as a result an out of court settlement was agreed.
The Deed of Settlement and Release dated xxxx stated you must pay the sum of $xxxx to the Plaintiffs.
You have incurred legal costs to defend the claims against you. You provided copies of invoices.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1