In general terms, for legal expenses to be deductible, they must have been incurred to generate income or be part of normal operating expenses, and cannot relate to the creation, amalgamation or termination of a business or the taking over of another business.
Expenses that can be claimed for tax purposes include:
- Improving employment contracts
- Fees for stamping and registering leases on property
- Renewals of leases
- Expenses that relate to registering, renewing (and defending) patents, renewal and defending trademarks, contracts and other commercially important information.
Expenses that are not deductible include:
- The costs of registering new trademarks
- Acquisition of capital assets
- Expenses incurred in the sale of a business
- Forming, registering or liquidating a company.
However, legal expenses incurred totalling less than $10,000 are allowed an immediate deduction without distinguishing between capital and expenses.
