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Edited version of private advice
Authorisation Number: 1051671720896
Date of advice: 4 May 2020
Ruling
Subject: Income tax - deductions - legal expenses
Question:
Are you entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the legal expenses and counsel fees incurred in defending allegations made by the Company?
Answer:
Yes. Based on the information provided, the allegations directly related to the performance of your duties for the Company. The principal reasons you incurred them was to defend your actions in carrying out your employment duties from which you earned your assessable income, and to avoid possible employment termination. Therefore, it is viewed that the legal expenses are deductible under section 8-1 of the ITAA 1997.
This ruling applies for the following period:
Income year ending 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
You had been employed by the Company for several years prior to attending a meeting with representative/s of the Company during which you were advised that allegations had been made against you by a work colleague in relation to your conduct, which constituted potential breaches of the Company's policies.
You attended a further meeting with the Company's representatives in relation to the ongoing investigations and the Company issued you a letter outlining that:
· a decision had not been reached, however the Company's initial view was that your conduct was likely to constitute a breach of Company policies and the suitable outcome may be termination
· you were asked to provide your responses to the allegations and detail why your employment should not be terminated.
You met with representatives of a legal firm, Company Z, and engaged their services in relation to the allegations shortly after the meeting, who corresponded with the Company in relation to this issue.
You resigned from employment with the Company a number of months after the investigation commenced.
You received after tax payments from the Company during the period of the investigation until you ceased employment with the Company.
The investigation had not been concluded at the time your employment with the Company ended.
You incurred and paid for legal expenses and counsel fees in relation to this issue. You do not intend pursuing the Company for the expenses incurred in relation to the investigation, nor do you have any professional indemnity insurance.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1