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Edited version of private advice
Authorisation Number: 1051596870913
Date of advice: 6 November 2019
Ruling
Subject: Deductions for legal expenses
Question
Are your legal expenses deductible?
Answer
Yes.
Your legal expenses are deductible as your legal action was in relation to a claim for an item of a revenue nature rather than a capital nature as per Taxation Determination TD 93/29 and Romanin v. Commissioner of Taxation [2008] FCA 1532; 2008 ATC 20-055; (2008) 73 ATR 760. The legal expenses are deductible in the income year that they were incurred.
This ruling applies for the following period/s:
Year ended 30 June 2018
Year ended 30 June 2019
The scheme commences on:
1 July 2017
Relevant facts and circumstances
Your contract with your former employer specified that if the employer terminated the contract within the first 12 months' for a reason other than unsatisfactory performance, misconduct or incapacity, a 12 month notice period will be provided and that a payment may be made in lieu of all or part of the notice period.
Within 12 months' of your employment commencing, your former employer merged with another company and terminated your role on the basis that under the new merged organisation there was only one executive position not two. They advised they would only provide a one month notice period.
Your solicitors sent a letter to your former employer advising they will be pursuing the failure to pay 12 months' notice as per your contract.
You lodged a claim to the courts against your former employer.
A settlement was reached whereby your former employer paid a portion of the payment in lieu of 12 months' notice you claimed was owed under the contract. Settlement was such that each party was responsible for their own costs.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1