LEGAL EXPENSES- DEDUCTIBLE OR NON DEDUCTIBLE

 

 

Not all legal expenses are deductible for tax purposes.   To be deductible, legal costs must generally be related to the income earning process, and not the capital structure of the business. 

Examples of allowable deductions for legal expenses are as follows:

Legal expenses incurred in borrowing money where the money is used in  the production of assessable income

 Registering, renewing and defending patents

Removing an obstacle to trade

Unsuccessful litigation concerning loss of assessable profits

Setting up or altering superannuation funds for employees

Successfully defending a prosecution

Renewal and defending of trademarks

 Appearing before the Commerce Commission

 Debt recovery, including an unsuccessful attempt to recover an amount which would have been assessable if recovered

 Land valuation objections

Expenses relating to share milking agreements

 Applications under the Residential Tenancies Act for the fixing of rent

 

Examples of legal expenses which are not allowable deductions are As follows:

Registering trademarks

Unsuccessfully defending a prosecution

 Costs incurred in the purchase of a capital asset, including a business or a licence

 Promoting changes in legislation

 Incorporation costs, e.g. of a company or trust.

 Litigation costs relating to fraudulent or willfully misleading tax returns

  Litigation costs relating to the assessment of penal tax, where the assessment is not cancelled

  Litigation costs relating to any offence under the Inland Revenue Acts.

 

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