Friday, 11 Oct 2024
Businesses have to bear various expenses to manage daily tasks and processes. These include paying supplier bills, salaries, taxes, insurance premiums, employee benefits, commercial property rent, utility costs, marketing budget, etc. Besides these expenses, they also have to pay legal costs. Every business must hire a lawyer to prepare contracts and help entrepreneurs understand the contract clauses they must sign. They ensure the business is compliant with regulations in Victoria and keep it on the path of law.
Lawyers draft various contracts and agreements for businesses, including commercial leases, loan agreements, partnership contracts, sale deeds, documents for a new start-up, etc. They even help entrepreneurs prepare terms and conditions for using the company website and privacy policy. Many of these costs can be claimed as deductions. Here is a list of the legal expenses that are tax deductible. Entrepreneurs in Melbourne can use this information to reduce their tax bills and save more.
Legal expenses incurred during business operations that help generate assessable income are tax deductible. Legal costs that are not deductible include the capital or private fee. The tax-deductible legal expenses include:
The business incurs commercial lease preparation and registration costs to earn an assessable income, making them tax-deductible. However, the rental payments made by the business owner for leasing a property are not legal expenses, so they are deductible as a business cost. Your bookkeeper in Melbourne can help ascertain these tax deductions based on the type of expense and claim them accordingly.
Business owners who own commercial property as an asset and have leased it for rental income can claim tax deductions for legal expenses incurred due to the tenancy. These costs include evicting a tenant who does not pay rent or taking legal action against them. They can also claim deductions for legal fees incurred while defending damages claims made by third parties for injuries suffered on their property.
Entrepreneurs take out loans to grow their businesses and fund new projects that can help generate more sales. This requires valuation expenses, which can be claimed for tax deductions. Expenses below $100 can be claimed immediately with the help of expert bookkeepers in Melbourne. Expenses that go beyond $100 can be spread over five income years of the term of the loan.
Business owners can claim tax deductions for negotiating employee contracts and managing disputes, such as defending the business in litigation filed by an employee alleging wrongful dismissal.
Businesses can be subjected to defamation by competitors, ex-employees and any other envious entity. It includes making deceitful public statements that harm the business reputation and lead to financial losses. The legal costs incurred by the business while defending itself in a defamation case are tax deductible and can be claimed with the help of a knowledgeable Melbourne bookkeeper.
Entrepreneurs can face various types of litigation that can impact their income, such as cases involving opposition to neighbourhood development, retrieving misappropriated business funds, claims of workers’ compensation, and copyright infringement. Bookkeepers are aware of the costs that are deductible and can claim them.
Sole traders who incur legal fees for business operations related to generating income can claim tax deductions for these expenses. These costs include legal fees incurred during the resolution of client disputes and the drafting and negotiation of contracts.
Not everyone feels the legal costs incurred by the business are tax-deductible. Entrepreneurs should be aware of these expenses, such as:
Business ownership disputes can arise in entities that have various shareholders and business partners. Management can disagree over the way the business is progressing or the profit share offered to the shareholders. There could be misconduct on the part of the shareholders who may have committed fraud, or there could be ego clashes over control and authority. Legal costs arising from such issues are not deductible because they are capital.
Business owners cannot claim deductions for legal costs incurred while evicting tenants from commercial property after the tenancy and the agreement end. Since these costs do not involve rental income, they do not affect assessable income and thus cannot be claimed.
Workplace sexual harassment or discrimination is a serious offence, and employees are protected from it through the Fair Work Act. However, these cases happen and when the business is involved in defending itself, the cost incurred is not tax-deductible.
Legal expenses are part of every business and can become a significant cost in certain circumstances, such as commercial lease income and defending litigation. Tax deductions can help reduce these expenses.
