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01 Jun 06 Legal expenses partially deductible - Day

The Federal Court (Emmett J) has allowed a taxpayer (a customs officer) a deduction for certain legal expenses, but denied a deduction for other legal expenses, that the taxpayer incurred in defending 3 sets of disciplinary charges and challenging the use of telephone interceptions undertaken by the Australian Federal Police. In so deciding, the Court stated, at para 36,  the principle to be applied in the following terms:

"Thus, it is necessary to examine the conduct or activity of the Taxpayer that was the subject of the charges under the Public Service Act. If that activity or conduct was engaged in by the Taxpayer for the purpose of, or in the discharge of, his duties as an officer of Customs, he may be entitled to claim that the legal expenses were incurred in gaining or producing assessable income. However, if the conduct that was the subject of the charges against the Taxpayer was conduct that was not engaged in in the discharge of his duties as an officer of Customs, the expenses were not deductible."

In relation to the legal expenses for which a deduction was denied, the Court found that one set of disciplinary charges against the taxpayer were brought for the wrongful use of his Customs identity badge, in the course of trying to discover why a search warrant had been executed in relation to the contents of his workstation. The Court said, at para 43:

"...the conduct [the wrongful use of the ID] was...not engaged in for the purpose of discharging or performing duties as an officer. It was engaged in in order to find out information concerning his own personal affairs, namely, the reasons for the search of his workstation. I do not consider that the legal expenses attributable to the...charge were deductible".

Day v FCT [2006] FCA 655 (Federal Court, Emmett J, 30 May 2006).

For a copy of the decision, go here

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