Associate Professor Peter Cashman contributes to the debate about the deduction of legal expenses

15 July 2008

Associate Professor Peter Cashman contributed to the debate about deduction of legal expenses in civil litigation cases by writing a feature article on the topic for the legal affairs section of The Australian.

Associate Professor Cashman delved into the debate concerning the capacity for businesses to claim a tax deduction for legal and other expenses incurred in connection civil litigation.

He referred to the recent review of Victoria's Civil Justice System, of which he was involved, where the Victorian Law Reform Comssission received requests for the abolition of tax deductibility for costs incurred in litigation.

According to Assocate Professor Cashman, opinions were divided and professional bodies such as the Law Institute of Victoria and Victorian Bar Association were opposed to such an abolition.

"At the very least, an important policy issue arises as to whether losing commercial parties (or their insurers) should be entitled to tax deductibility for costs incurred in the pursuit of unmeritorious claims or defences," he wrote.

"A question of 'equity' might be said to arise when some parties to civil litigation are entitled to a deduction for legal expenses, whereas others are not.

"Ordinary 'private' litigants are not able to claim a deduction for legal expenses incurred and when they succeed the legal costs often substantially erode any damages they might receive because costs recovered from the losing party are only a proportion (often as little as 50 per cent) of the actual legal costs incurred by them in 'winning'.

"Moreover, the losing (commercial) party (or its insurer) might also be entitled to claim a deduction for the costs paid to the winning party."

Associate Professor Cashman questions whether the availability of tax deductibility has any " bearing on corporate forensic conduct?" and whether corporate litigants would "...behave differently or minimise legal costs if such costs were not deductible?"

However, he points out that deductibility only transfers part of the costs to the "...public purse."

Nevertheless, he asserts that the announcement of the Federal Attorney-General's intention to look into the matter further is "...long overdue."

To view the entire article - It's time to limit the deduction for legals.

Contact: Greg Sherington

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