Edited version of private advice

Authorisation Number: 1052169109913

Date of advice: 3 January 2024

Ruling

Subject: Deductions - legal expenses

Question 1

Will the legal fees you incurred in defending against an investigation by the Professional Association concerning your professional conduct whilst performing your duties as a professional be an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997?

Answer

Yes. Your legal expenses are deductible. The expenses were incurred in gaining or producing assessable income and are not outgoings of a capital or private nature.

The nature of the expenditure arose out of an investigation concerning your professional conduct and day-to-day performance as a professional with Business A, through which you gained or produced assessable income.

The legal expenses meet the guiding principles from case law for deductibility under section 8-1 of the Income Tax Assessment Act 1997, relevently, Putnin v. Federal Commissioner of Taxation (1991), Elberg v. Federal Commissioner of Taxation (1998) and Wood v. Federal Commissioner of Taxation (2023).

This ruling applies for the following periods:

Income year ended 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

1 June 20XX

Relevant facts and circumstances

You were a Partner of Business A from 20XX to MM20XX.

You were registered as a professional from DDMM20XX to DDMM20XX.

You were employed with Business B from MM20XX to MMDD20XX.

Upon ceasing with Business B, you were paid for your X months' notice period.

You were restricted in undertaking any income producing activities within that X-month period to DDMM20XX.

On DDMM20XX the Professional Association provided you a notice of investigation.

The specific conduct which was subject of the Professional Association investigation included you as a partner in Business A. The nature of the conduct was outlined.

The alleged conduct occurred from 20XX to 20XX.

You provided a copy of the notice of investigation.

At the time you received the notice of investigation, you were employed with Business B working as a professional.

You sought legal services from a Lawyer.

On DDMM20XX you submitted your response to the Professional Association's allegations. You provided a copy of your response.

On DDMM20XX you submitted a second response to the Professional Association in relation to potential sanctions that may be imposed by the Professional Association. You provided a copy of the second response.

On DDMM20XX the Professional Association provided you the finding.

You provided a copy of the finding.

You received the following itemised tax invoices from the Lawyer.

You paid the legal fee invoices.

The legal expenses are not covered by any professional indemnity insurance.

You have not sought or will not seek to recover costs from other parties.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Matters we have not ruled on

We have not ruled on the following question. This is because you have withdrawn your request for a private ruling on this question:

Question 2

Can you, as a former partner in partnership, claim a deduction for the legal fees incurred under section 40-880 of the Income Tax Assessment Act 1997?