Edited version of private advice

Authorisation Number: 1052394082830

Date of advice: 08 May 2025

Ruling

Subject: Deductions - legal fees

Question 1

Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the legal expenses you incurred in relation to bullying and harassment?

Answer 1

Yes.

Section 8-1 of the ITAA 1997 allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature.

For legal expenses to constitute an allowable deduction, it must be shown that they are incidental or relevant to the production of assessable income or business operations. The nature of the expense must also be considered. The nature or character of legal expenses follows the advantage that is being sought by incurring the expenses.

You incurred legal expenses in defending your employment position. The associated legal expenses you incurred had a relevant connection to the earning of your assessable income and the advantage being sought was revenue in nature. The expenses are therefore deductible under section 8-1 of the ITAA 1997.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were employed by Company A (the employer).

During 20XX, you were subjected to various instances of workplace bullying and harassment.

During your employment, you refused to consent to a non-mandatory observation which a senior executive insisted on.

You requested a transfer to a different place of employment for your professional and continued development. This request was refused by the senior executive.

You completed training which the senior executive refused to sign off on. This resulted in the accreditation in your field being suspended.

The bullying and harassment you experienced caused a significant deterioration in your health and general wellbeing.

You received workers compensation benefits from the employer for the psychological injury you sustained from these events.

You sought legal action to address the unfair treatment and resolve the dispute regarding your employment, professional accreditation and refusal of the transfer.

On approximately XX/XX/20XX, you instituted proceeding for work injury damages against the employer, stating that the injury you sustained was caused by their negligence, breach of statutory duty and/or breach of contract.

The employer denied all liability in respect of the injury.

You and the employer agreed to settle the dispute. The employer agreed to pay you in full in return for you abandoning any claim against them in relation to the injury and allegations of negligence.

In consideration of the settlement of the claim, you agreed to resign from your employment position on the date the settlement sum was paid to you and agreed that you would not apply for any position or seek re-employment with the employer in the future.

During the 20XX income year, you incurred $XXXX in legal expenses associated with protecting your income producing rights.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1