When is legal expenses deductible

New Zealand. Australia New Zealand. Expenses that can be claimed for tax purposes include: Improving employment contracts Fees for stamping and registering leases on property Renewals of leases Expenses that relate to registering, renewing and defending patents, renewal and defending trademarks, contracts and other commercially important information. In the right circumstances, your tax advisor can help you put together evidence to support deductible treatment for legal expenses.

Skip to content. August 17, Legal expenses incurred by individuals are typically not currently deductible under the federal income tax rules. Expenses for Production or Collection of Income and to Handle Tax Matters You can deduct legal expenses incurred for 1 the production or collection of income, such as legal actions to collect unpaid wages and alimony, or 2 the determination, collection or refund of any tax.

IRS Private Letter Ruling In a PLR, the taxpayer had experience managing closely held companies, and he had agreed to serve as the managing shareholder of a newly formed corporation in exchange for a management fee. In addition, the wording of the proviso to section 11 c i opened the way for an apportionment of expense by the court: "so much thereof as is not of a capital nature".

In so doing, the taxpayer was seeking to protect its market, which was part of its structure and capital in nature;. This expense was related to its income earning operations and was thus revenue in nature;. This was found to relate to the new work and was thus capital in nature;. This was found not to relate to preserving the copyright or any other asset and was thus revenue in nature.

The court therefore analysed the legal activities into component parts and then considered each component in light of section 11 c and made its decision accordingly. The taxpayer operated a factory manufacturing mercury products. In an employee was found to be suffering from mercury vapour poisoning, while another two employees had died from the same condition.

The Department of Manpower launched an investigation, followed by a magisterial enquiry. Instead they are made deductible under a specific provision in tax law:. Ask us if any of the above is relevant to your tax affairs. Other common legal expenses are considered below. The cost of preparing, registering and stamping a lease is deductible if the taxpayer is using or will use the property for earning assessable income.

The lease payments themselves will be deductible under the general deduction rules, and are therefore subject to special prepayment rules ask us for more information on this. If valuation fees are paid to help decide whether to buy a business, these are generally capital costs and not an allowable deduction. Deductions are specifically denied for fines or penalties however described that are imposed as a consequence of a breach of any Australian or foreign law.