Income tax: if a lessee incurs legal expenses defending a lessor's attempts to terminate the lease, are these legal expenses an allowable deduction under subsection 51(1) of the Income Tax Assessment Act 1936 ?

No. The legal expenses are of a capital nature and are not deductible under subsection 51(1).

They are not incurred by the lessee in the course of gaining or producing assessable income or carrying on a business for that purpose, but are incurred for the purpose of securing the lessee's right to possession of the asset that is being leased.

However, the first $50 of the legal expenses will be allowable under section 64A if they fall within the definition of legal expenses in that section.