There are different types of legal expenses that may be tax deductible, depending on whether you are an individual or a business. For businesses, legal expenses that are incurred in the operation of the business and that are related to generating taxable income are generally deductible. For individuals, legal expenses must be incurred in the process of earning taxable income in order to be deductible.

There are specific provisions in tax law that allow for the deduction of certain legal expenses that are of a capital or private nature, such as the cost of preparing an income tax return, disputing a tax assessment, obtaining professional tax advice, preparing lease documents, and certain borrowing and mortgage discharge expenses.

Other common deductible legal expenses for businesses may include the cost of preparing and registering a lease for property that will be used to generate taxable income, valuation expenses that are used to support the borrowing of money for business purposes, and legal fees related to negotiating and defending current employment contracts, wrongful dismissal actions brought by former employees or directors, defamation actions, arbitration in settling disputes, recovering misappropriated funds, opposing developments that could negatively impact the business, evicting rent-defaulting tenants, recovering wages from dishonored checks, defending libel actions related to the business, pursuing workers' compensation claims, and defending against unauthorized use of trademarks.

It is important to note that fines and penalties resulting from a breach of any Australian or foreign law are not deductible. It is also worth consulting with a professional adviser to determine the tax deductibility of legal expenses in specific circumstances.