Legal Expenses & Your Tax

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.