The AAT has held that a taxpayer’s legal expenses incurred in protecting her interest in a taxi plate, licence, and vehicle was not an allowable deduction under s 8-1 of the ITAA 1997 as the costs were of a capital nature.
The taxpayer is the recipient of a carer allowance for her husband, which is determined by reference to her ordinary income reduced by any allowable deductions. For the 2011 tax year, she contended that Centrelink erred by not allowing her to deduct legal expenses, which would have reduced her ordinary income and increased the rate of her carer allowance. The legal cost related to a NSW Supreme Court proceeding over the alleged sale of taxi plates, licence, and vehicle from a third party to the taxpayer.
The AAT found that the taxpayer incurred the legal costs in defending her rights to enjoy a profit-yielding asset (ie the taxi), and in obtaining the judgment in her favour, she preserved her interest in the asset. Therefore, it held that the legal costs were to be regarded as capital in nature and affirmed the decision of the Secretary to not reduce the taxpayer’s ordinary income by the amount of legal costs. (AAT Case [2013] AATA 444, Re Theglory and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs, AAT, Ref No 2011/5360; Britton SM, 28 June 2013.)
[LTN 124, 1/7/13]