Knowing what type of legal expenses are tax-deductible is valuable information when it comes to budgeting and allocating funds for emergencies.
Legal expenses that pay for business operations integral to producing an assessable income are tax-deductible. However, if the legal fee is capital, domestic or private in nature, then it will not be tax-deductible unless explicitly stated otherwise in legislation.
Legal expenses that can be claimed (This is not an exhaustive list):
- Negotiating contracts with existing employees (including disputes) with respect to employment arrangements
- Defending wrongful dismissal allegations brought on from employees or directors
- Defending a defamation action
- Opposing developments in the neighbourhood that may adversely affect the business (depends on facts of the case)•Evicting a rent-defaulting tenant
- Pursuing claims for workers compensation
Legal expenses that cannot be claimed (This is not an exhaustive list):
- Costs of negotiating employment contracts with new employers
- When defending driving charges (irrespective of whether driving on company business)
- Defending sexual assault charges or racial vilification that occurred within the workplace
- For the eviction of a tenant whose lease period has expired
- Challenging redundancy or seeking increased redundancy amount
It is wise to have a basic understanding of how tax deductions work when you own a business. Even a rudimentary understanding will allow you to prepare your budget and finances to accommodate for potential legal complications.