Legal expenses are the solicitor fees, court costs, and other expenses involved in dealing with legal matters. Legal expenses can be incurred in getting legal advice, initiating legal action, or defending legal claims.
Legal expenses for an employee will only be deductible where they are incurred in gaining or producing assessable income and are not of a capital or private nature. This will always be a question of fact and depends on the individual’s circumstances.
Legal expenses can also be deductible even if the employee’s legal claim is ultimately unsuccessful.
Generally speaking the following legal expenses may be deductible for an employee:
- Legal expenses to recover unpaid wages – TD 93/29.
- Legal expenses to recover unpaid unused annual leave or long service leave – ID 2002/391.
- Legal expenses in settling disputes arising from an existing employment contract – TR 2000/5.
- Legal expenses in changing the conditions of an existing agreement with the same employer – TR 2000/5.
- Legal expenses to defend dismissal.
- Legal expenses to defend the manner in which duties are carried out by an employee.
- Legal expenses to defend charges which arise from a taxpayer’s income-earning activities.