This is a new service – your feedback will help us to improve it.

  • 93 Online
  • 9186 Members
  • 14615 Posts

Re: Deductability of legal expenses

Reply

I'm new

Views 145

Replies 3

My employer threatened to dismiss me and gave me the "opportunity to resign". I sought legal advice and the lawyers wrote a letter to my employer. The letter proposed a resignation settlement, which the employer declined. I am still employed in the same job. As the legal action helped me to retain my job, are these costs tax deductible?

1 ACCEPTED SOLUTION

Accepted Solutions

Best answer

Moderator

Replies 0

Hi @Daniel555,

 

Determining if legal expenses are tax deductible can be complex and depends on the exact circumstances you faced when you employer gave you the “opportunity to resign”.

 

Given this complexity, we’d encourage you to apply for a private ruling as this provides a binding opinion on the deductibility in your circumstances.

 

Thanks, NicM.

3 REPLIES

MVF
Devotee

Replies 0

Hi @Daniel555

 

Must have been one hell of an experience to go through all that ...

 

In answer to your question, legal expenses incurred in preserving employment are not deductible as they are considered to provide an enduring advantage and are therefore capital in nature.

 

Many taxpayers have applied for private rulings on this issue and the ATO keeps quoting the following:

  

" The Courts, Boards and Tribunals have consistently held that the legal expenses incurred by taxpayers in defending themselves against dismissal from their employment are of a capital nature. This is because:

  • The legal expenses can be regarded as having been incurred 'once and for all'.
  • The advantage sought to be gained is the preservation of the taxpayer's employment.

The Courts, Boards and Tribunals have also held that legal expenses incurred by taxpayers in seeking to regain their employment following dismissal have been incurred too early to be regarded as having been incurred in gaining or producing the taxpayers' income from that employment. "

 

If you believe there is a bit more to your situation then the way forward on this issue is to apply to the ATO for a private ruling and this will give you the opportunity to discuss your circumstances with the officer that is going to make the ruling, and its a totally free service.

 

ATO 13 28 61

 

Best answer

Moderator

Replies 0

Hi @Daniel555,

 

Determining if legal expenses are tax deductible can be complex and depends on the exact circumstances you faced when you employer gave you the “opportunity to resign”.

 

Given this complexity, we’d encourage you to apply for a private ruling as this provides a binding opinion on the deductibility in your circumstances.

 

Thanks, NicM.

Highlighted

MVF
Devotee

Replies 0

Hi @Daniel555

 

Further to my original post .. here is a reference to the ATO legal database where they discuss these types of issues under " EXPLANATION: (This does not form part of the Notice of Private Ruling)"    in an edited private ruling ... https://www.ato.gov.au/law/view/view.htm?docid=EV/54151&PiT=**TFN removed**35958

 

If you have the time and inclination there are many other references to this issue on the ATO legal database and they are easy enough to find and when you go through them you will see that the ATO keep on referring to the same reasonings even under a diverse range of different taxpayer circumstances ...

 

If you apply for a private ruling it would be interesting to know if you get a different response from the ATO ..... 

 

All the best with this !!!

Top Solution Authors