Edited version of private advice

Authorisation Number: 1051903601486

Date of advice: 24 September 2021

Ruling

Subject: WRE - legal - contract

Question

Are you entitled to a deduction for the legal fees incurred to receive advice regarding your employment agreement?

Answer

Yes. Taxation Ruling TR 2000/5sets out the Commissioner's view of the application of section 8-1 of the Income Tax Assessment Act 1997 to costs incurred by employees and employers in preparing and administering employment agreements. The ruling states that certain costs incurred by an employee are an allowable deduction.

In your case, the legal expenses were incurred in administering your current employment agreement and are therefore an allowable deduction.

This ruling applies for the following periods:

Year ended 30 June 2019

Year ended 30 June 2020

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You are an employee.

You were approached by another company and offered a position to work for them.

You intended to accept this offer, however upon informing your then employer of this intention, they stated that they were unhappy with this.

You received numerous verbal and written demands for the payment of damages/compensation for what your then employer claimed to be a breach of your employment agreement and/or fiduciary duties as an employee of theirs in accepting the new position.

In order to understand whether you were legally free to accept the new position and do so without exposing yourself to further legal claims from your then employer, you engaged a law firm to provide advice with respect of these matters.

This advice was sought for the purpose of determining the dispute regarding your employment agreements/agreement, determining that you could exercise your workplace rights to resign and take up alternative employment without having to incur damages.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1