Mackenzie Elvin

As of April 1 2009 businesses will be able to claim a full tax deduction for legal expenses up to $10,000

With effect from 1 April 2009 businesses can generally claim a full tax deduction for legal expenses up to $10,000 in the year those expenses are incurred. For expenses over $10,000 the usual (old) tax rules apply and legal expenses need to be split between those that are fully deductible and those that need to be depreciated because they relate to a capital purchase.

Example: A business purchases capital equipment with bank finance. The total legal expenses are $4,000 for the financing of the purchase and $4,000 for the legal work on the purchase. The full $8,000 will be deductible in this case. Under the usual (old) tax rules only $4,000 for financing would be deductible in the year incurred with the balance depreciated as part of the cost of purchase of the capital equipment.

NOTE:

1. The amount of $10,000 excludes GST if the business is GST registered;
2. The deduction is only for businesses where the total legal expenses in one year are $10,000 or less;
3. The relevant legislation is Section 4 of the Taxation (Business Tax Measures) Act 2009 which inserted a new Section DB 62 into the Income Tax Act 2007.