Income tax: are legal expenses deductible by a taxpayer where they are incurred in defending actions brought for illegally conducting conveyancing in the course of carrying on a real estate business?

Yes. The second limb of subsection 51(1) of the Income Tax Assessment Act 1936 allows a deduction for expenditure that is necessarily incurred in carrying on a business for the purpose of gaining assessable income.

In Magna Alloys & Research Pty Ltd v FC of T, 80 ATC 4542, legal costs incurred in defending a taxpayer's business methods were deductible, even though the nature of the activity was illegal. Note: In this Determination "Legal Expenses" have the same meaning as that in subsection 64A(1).