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.
To talk about tax deductions in your business please chat with one of our business accountants and tax advisors. Contact LT today.