When a legal expense is incurred in relation to the operation of a business to produce assessable income, it is generally allowable as a deduction. Exceptions are when the legal fee is capital, domestic or private in nature, if it is specifically excluded by another section of income tax legislation, or is incurred in earning exempt and non-assessable non-exempt income.
In this regard, for individuals incurring legal fees, the expense incurred would not be deductible unless there is a clear nexus with the expense being incurred in deriving assessable income (for example, for an investment property). In other cases, the expense may be private in nature so a deduction would not be available in any case.
The following types of legal expenses are not deductible under the general deductibility provisions because they are of a capital or private nature. Instead they may be deductible under a specific provision in tax law:
- the preparation of an income tax return, the disputing of a tax assessment and the obtaining of professional tax advice
- the preparation of lease documents
- certain borrowing expenses, and
- certain mortgage discharge expenses.
A private ruling may be necessary for some legal expense claims, although certain specific informationmay be required. Readmore
