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The AAT has held that legal expenses incurred in the 2011 income year by the taxpayer, formerly an employed stockbroker, in challenging in court proceedings a banning order made against him by the Australian Securities and Investments Commission (ASIC), prohibiting him from providing any financial services for a 5 year period, were not allowable as deductions. Further, legal expenses incurred in defending 20 criminal charges laid against the taxpayer by the Commonwealth Director of Public Prosecutions (DPP) were also not deductible.

The taxpayer was not in employment after the banning order became effective, and the banning order occurred before the legal expenses were incurred.

The taxpayer’s main contention was that the "occasion" of his outgoings in the 2011 year was "defending activities he was undertaking in the course of earning his income as a stockbroker and provider of financial services between 12 July 2006 and 9 August 2006" and that his expenditure in the 2011 income year "was a continuing part of an ongoing defence of those actions".

The AAT distinguished the decision in FCT v Day [2008] HCA 53, and said at para 66:

"Unlike the taxpayer in Day, who had an on-going employment relationship with his employer (the public service), here, the Taxpayer’s position...was 'terminated' on 7 May 2010 before the 2011 Legal Expenses were even incurred by him. In the Tribunal’s opinion, the connection between the 2011 Legal Expenses incurred by the Taxpayer and the production of assessable income rises no higher than a mere 'causal connection' and, as discussed above, the authorities make it clear that a mere 'causal connection' in insufficient for s 8-1(1) purposes. Something closer and more immediate than a mere causal connection is required..."

In relation to the legal expenses incurred in relation to the criminal charges, the AAT held that these were not deductible, being of a private nature, incurred to prevent the taxpayer from suffering adverse personal consequences, namely potential imprisonment for up to 10 years or a substantial fine.

Taxpayer and FCT [2013] AATA 783 (AAT, Walsh SM, 4 November 2013).

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