Edited version of private advice

Authorisation Number: 1052364562692

Date of advice: 21 February 2025

Ruling

Subject: Legal expenses

Question 1

Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for your legal expenses?

Answer 1

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

In your case, you incurred legal expenses to receive entitlements you believe you were owed from your previous employer. These entitlements are directly related to your employment from which you derived your assessable income.

Your legal expenses are of a revenue nature. Therefore, you are entitled to a deduction for the expenses under section 8-1 of the ITAA 1997.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were employed full-time by Company A (the employer) from Date one to Date two.

You were employed as a XX. As part of your role, you had a book of business with listed customers you had to manage.

Your role was to make sure that customers were fully utilising the employer's products and that they renewed their yearly contract with the employer.

On Date 3, you made a complaint in relation to workload and Key Performance Indicators (KPIs) and Objective Key Results (OKRs). You complained that the expected results were not achievable.

On Date 4, the employer indicated that you would be put on a performance plan the next day.

On Date 5, you were diagnosed with an injury. From that date onwards you did not perform work for the employer.

On or about Date 6, you exercised your rights to seek compensation under the relevant legislative act.

In that application, you alleged that several entitlements of a revenue nature were owing to you.

On Date 7, the employer was notified you had made a workers' compensation claim. You then began receiving workers' compensation payments.

On Date 8, the employer was notified that your worker's compensation payments would be retrospectively increased with effect from Date 9.

During the later months of 20XX, you did not receive workers' compensation payments due to administrative issues.

In lieu of receiving workers' compensation during those months, you were paid an advance payment.

On Date 10 you were dismissed from your employment. The employer provided you with a letter on termination which included the grounds for your termination as follows:

•                     failure to comply with lawful and reasonable directions of your employer

•                     your conduct in breach of your obligations of good faith and fidelity to the employer

•                     your misuse of confidential information

The failure to comply with lawful and reasonable directions relates to an accidental overpayment of salary you received. The employer stated that they had emailed you on several occasions requesting that you respond regarding the repayment of your overpayment. However, you failed to do so.

The employer also stated that you appeared and spoke at a work related event when you had advised your employer you were unfit for work due to illness or injury. The employer asked you to respond to their correspondence regarding this issue by a certain date, which you failed to do.

The employer also stated that while on leave you accessed client files that you had no authority or legitimate reason to access.

You lodged a claim with the Fair Work Commission for unfair dismissal in contravention of Part 3-1 of the Fair Work Act 2009 (Cth).

A conciliation conference was held on Date 11. Following the conference, the Fair Work Commission were satisfied that all reasonable attempts to resolve the dispute other than arbitration had been or were likely to be unsuccessful. You did not proceed any further with this claim following the conciliation conference.

On Date 12, you lodged a small claims application under the Fair Work Act 2009 (Cth). In that application you were seeking payment of amounts including commissions and superannuation.

You were seeking payment for the following items:

•                     commission

•                     superannuation

•                     allowances including car and working from home allowances

•                     unpaid personal leave

•                     XX week's salary in lieu of notice being given before termination

On Date 13, you commenced a separate and further proceeding in the court by way of a separate Fair Work application.

On Date 14, the employer filed their responses to both claims.

The employer denied the claims you had made in both proceedings.

On Date 15, the Court made orders to join the proceedings and refer the matters for mediation.

Mediation took place and did not result in you resolving your differences with your employer.

On Date 16, the judge ordered that you file and serve an amended statement of claim you wished to rely on by Date 17.

You were also advised to file and serve any affidavit evidence you wished to rely upon by Date 18.

You filed an amended statement of claim on Date 29.

A directions hearing was held on Date 20. At that hearing, a timeline was provided for the employer's and your submissions:

A hearing was set down in relation to the summary dismissal applications for Date 21.

You have filed a submission in relation to the hearing set down for Date 21. In that submission, you have advised that you don't believe the respondent should have legal representation for the following reasons:

•                     the issue involves clear statutory breaches under the Fair Work Act 2009 (Cth)

•                     the respondent refused to settle in the Fair Work Commission and the failure of mediation demonstrates an adversarial stance

You have spent amounts on legal fees and mediation costs in the ruling period.

All of the amounts you were seeking were revenue in nature. They were amounts that you believe you were owed and would have been assessable if your claims were successful.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1