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Edited version of private advice
Authorisation Number: 1051607410603
Date of advice: 12 November 2019
Ruling
Subject: Legal expenditure
Question
Are the legal fees that were incurred by you in defence of a civil action brought by the Commissioner of Taxation in the Magistrate's Court deductible?
Answer
Yes. Subsection 25-5(1) of the Income Tax Assessment Act 1997 allows you to claim legal expenditure for defending as a cost of managing tax affair's. Defending a civil action brought by the Commissioner of Taxation under Schedule 1 to the Taxation Administration Act 1953 section 255-5 to recover unpaid income tax is included in this section. Only the fees in excess of the compensation can be claimed.
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Commissioner of Taxation instigated legal action against you for non-lodgement of tax returns, the proceedings were heard at the Magistrate's court.
The court case was dismissed late in 20XX. The Magistrate included a compensation payment from the Commissioner to the client for reasonable estimate of legal fees.
Legal fees for the case totalled significantly more than the compensation payment.
Relevant legislative provisions
Income tax Assessment Act 1997 subsection 25-5(1)