Are those Legal Fees Deductible

Posted: 9th December 2010

With more and more contract disputes ending up in the hands of lawyers, the question of whether these costs are tax deductible is often asked.

Generally, where the legal fees have been incurred for the purpose of generating income, they are deductible.  Business's need to identify whether the nature of each legal expense is therefore either capital or revenue.

As part of the Government's initiatives to reduce compliance costs for SME's, legislation introduced in 2009 allowed taxpayers who had incurred legal expenses equal to or less than $10,000 in any one year to claim them, even if they were of a capital nature.

Any more, even by just $1.00, then the ordinary rules would still apply. 

Typical examples of non-deductible legal expenses include those incurred when acquiring or disposing of capital assets, altering the structure of an entity or when forming or liquidating a company. 

A deduction is allowed in other certain circumstances, for example legal fees associated with borrowing costs, lease preparation or completion of tax returns.

If you have any queries, please call Sudhir Lala on 09 308 4055 or email at sudhir.lala@tbag.co.nz