Tax deductions for legal costs

You can deduct business-related legal expenses when your total legal expenses incurred in an income year are $10,000 or less. This applies even if the legal expenses are capital in nature, as long as the expenses have a sufficient connection with deriving assessable income.  Legal expenses are defined as fees for legal services rendered by a person who holds a practising certificate issued by the New Zealand Law Society or an Australian equivalent only. If the legal expenses do not meet this definition or the total legal expenses for the income year exceed $10,000, then the ordinary rules relating to deductibility apply. This means that to claim a deduction the expense must have a sufficient connection with assessable income and can’t be of a capital nature.

See Income Tax Act 2007 Subpart DB, sections DB62 (deduction for legal fees), DA1 (general rules), and DA2 (general limitations).