Edited version of private advice

Authorisation Number: 1052205407274

Date of advice: 8 January 2024

Ruling

Subject: Deduction - legal expenses

Question

Are you entitled to claim a full deduction for legal expenses incurred in the relevant income year under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Legal expenses incurred by an employee in the course of employment are an allowable deduction under section 8-1 of the ITAA 1997.

You engaged legal advice in response to a show cause notice from your employer and in response to a workplace investigation. The occasion of your legal expenses can be found in your position as an employee and defending the way you carried out your duties.

In Federal Commissioner of Taxation v. Day [2008] 236 CLR 163; 2008 ATC 20- 064; [2008] 70 ATR 14 (Day), the court accepted that legal expenses incurred in defending the manner in which a taxpayer performed their employment duties were allowable. Of significance was the fact that the legal expenses were incurred in responding to disciplinary action internal to the employment relationship and existing for no other purpose. The taxpayer was exposed to the action by reason of his employment as a public servant, and the consequences of the action only affected his employment.

This ruling applies for the following periods:

Period ended 30 June 2023

Period ended 30 June 2024

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You are employed as a XXXXX.

You were advised of the outcome of an investigation into a letter tabled at a XXXXXXXX hearing.

The Commission did not identify information giving rise to a reasonable suspicion of corrupt conduct and the Ethical Standards also concluded no corrupt conduct or misconduct issues.

You were again referred to the Commission.

The Commission referred the complaints back to your employer to engage external investigators.

You were advised your employer referred the matters to external investigators.

You were advised the investigation was still ongoing and near completion.

You received a request from the external investigators to attend a further interview.

You were advised the external investigator had provided the investigation report to your employer and it was being considered by your employer.

Your employer issued you with a show cause notice and the opportunity to respond within 14 days in writing as to why you should not be disciplined.

The show cause notice stated it was considered you may be liable to disciplinary action as you failed to follow due process in respect to a complaint received.

You sought legal advice regarding your response to the show cause notice.

You provided your response to the show cause notice to your employer.

Your employer advised you the allegations against you were substantiated and you have been found guilty of inappropriate or improper conduct in an official capacity.

You responded to your employer suggesting no disciplinary action should be taken against you.

Your employer advised you contravened the Code of Conduct in a way sufficiently serious to warrant disciplinary action.

You lodged an Appeal Notice with the Court of Industrial Relations.

The Court of Industrial Relations issued a Notice of Appeal to your employer.

The Court of Industrial Relations issued a Directions Order.

Your employer forwarded a copy of the external investigator's report to the Commission as the investigation was subject to a Commission Merit and Compliance Review.

The Commission referred additional allegations to your employer requesting further investigation.

You were advised your employer appointed an external investigator to investigate the additional allegations concerning your workplace conduct.

The external investigator invited you to provide a written response to the allegations.

You sought legal advice regarding the written response you provided addressing the allegations.

You provided a written response regarding the workplace investigation.

The investigation was subject to a Public Interest Review.

This imposed strict reporting obligations on your employer.

You were notified your employer and the Commission are in on-going discussions about the workplace investigation report.

Receipts for payments to the Lawyer were provided.

For the period ended 30 June 20XX the receipts total $ X,XXX

The lawyer's receipts for the period ended 30 June 20XX total $X,XXX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1