Edited version of private advice

Authorisation Number: 1052365485203

Date of advice: 25 February 2025

Ruling

Subject: Deductions - legal expenses

Question 1

Can you claim the legal expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) that are associated with obtaining lost wages?

Answer 1

Yes.

Section 8-1 of theITAA 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income and is not:

•                     Capital, private or domestic in nature.

•                     Incurred in gaining or producing exempt income or non-assessable non-exempt income; or

•                     Prohibited by a section of the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936).

In determining whether a deduction for legal expenses is allowed under section 8-1 of theITAA 1997, the nature of the expenditure must be considered. The nature or character of the legal expenses follows the advantage which is sought to be gained by incurring the expenses. If the advantage gained is of a revenue nature, then the costs incurred in gaining the advantage will also be of a revenue nature.

As the legal expenses were incurred to obtain compensation for the loss of salary/wages, the advantage is of a revenue nature rather of a capital nature and the expenses are therefore deductible under section 8-1 of theITAA 1997.

This ruling applies for the following period:

Year ended 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were employed by a company.

You suffered a workplace injury. Due to your injury, you lodged a claim to seeking compensation.

Your claim for compensation was denied.

You lodged an appeal.

You retained a law firm to represent you throughout the appeals process at a fixed fee.

The result of your appeal was ruled in your favour and the defendant was required to pay you an amount in compensation for lost wages.

The defendant was required to reimburse part of your legal expenses, however this did not include the fixed fee you paid to your legal team for representing you throughout the appeal.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1