Issue
Is a taxpayer entitled to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for legal expenses incurred in obtaining a release from their previous employment to facilitate a transfer to their current employment?
Decision
No. The taxpayer is not entitled to claim a deduction under section 8-1 of the ITAA 1997 for legal expenses incurred in obtaining a release from their previous employment to facilitate a transfer to their current employment.
Facts
The taxpayer was an employee in full time employment with their former employer.
The taxpayer received an offer of full time employment from another employer that offered: • improved career development opportunities • higher remuneration.
The taxpayer incurred legal expenses in obtaining release from their former employer to take up the new offer of employment.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.
The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin & NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; [1949] HCA 15; (1949) 8 ATD 431 the High Court stated that: For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.
The expenditure must therefore be related to the production of assessable income and not incurred at a point too soon to be deductible ( FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541; (1971) 45 ALJR 426).
The legal expenses incurred by the taxpayer to obtain a release from their former employer are: • not related to the earning of assessable income from their former employer and • incurred at a point too soon in gaining or producing assessable income from their current employer.
The taxpayer is therefore not entitled to a deduction under section 8-1 of the ITAA 1997 for legal expenses incurred in obtaining a release from the former employer to take up the new employment offer.
Amendment History
Date of Amendment Part Comment 13 March 2015 Decision Updated for clarity Facts Updated for clarity Reasons for Decision Updated citations and punctuation Case References Updated citations
Date of Amendment | Part | Comment
13 March 2015 | Decision | Updated for clarity
Facts | Updated for clarity
Reasons for Decision | Updated citations and punctuation
Case References | Updated citations