SEEKING legal advice regarding a penalty notice from the Australian Tax Office has paid off for a taxpayer with the ATO ruling that the cost of that advice is tax deductible.
• In Interpretative Decions 2004/831, the ATO ruled that expenses incurred in seeking legal advice were deductible if:
They were for complying with an obligation imposed on the taxpayer by a Commonwealth law and related to the tax affairs of an entity; and
• The advice was provided by a recognised tax adviser.
The Tax Commissioner reasoned that:
• Legal advice sought in relation to the penalty notice imposing an obligation on the taxpayer to take certain actions or otherwise be liable for the unpaid amount of the Pay As You Go withholding debts of the company was an obligation imposed by a Commonwealth law;
• The expression tax affairs included not only income tax but also collection of ancillary tax amounts such as provisional tax, group tax and prescribed payments; and
• A recognised tax adviser is a registered tax agent or legal practitioner.
Given the definition of ‘recognised tax adviser’ this outcome is equally applicable to advice given by registered tax agents or legal practitioners.
Chris Smailes
9481 8311