Quick answer
Accounting, legal, and consulting fees are deductible in Australia when they arise from running the business or managing its tax affairs. Fees whose purpose is capital, such as buying a business or defending ownership of an asset, are not deductible outright but can usually be spread over five years, and a small business can deduct start-up advice immediately. Employees deduct the cost of renewing licences and registrations for their current job. GST credits are available on all of it.
Are professional fees tax deductible in Australia?
The general deduction rule in section 8-1 covers fees incurred in gaining assessable income or carrying on a business, as long as they are not capital, private, or domestic. For professional fees the ATO applies a straightforward test: the character of the fee follows the advantage you were trying to obtain. Legal fees to recover an unpaid invoice, defend a workplace claim, draft supplier contracts, or protect future earnings arise from day-to-day operations and are deductible. Legal fees to acquire a business, defend title to shares, or negotiate the purchase of premises secure a capital advantage and are not.
Tax-related expenses get their own, more generous provision. Section 25-5 makes fees for managing your tax affairs deductible regardless of the capital question: a registered tax agent preparing and lodging returns and BAS, tax advice on the business, and the cost of attending an audit all qualify, and so does the cost of preparing an individual’s own return. The deduction falls in the year the fee is paid.
Capital fees are not a dead loss. Section 40-880, the so-called blackhole provision, lets a business deduct business-related capital expenditure that no other rule deals with in equal instalments over five income years. Since 2015-16, a small business entity can go further and deduct certain start-up expenses immediately: professional advice on how to structure the business and the government fees to set the structure up, such as incorporation fees. That covers most of the accountant’s and lawyer’s bills in a start-up year.
Employees deduct a narrower set. Renewing a licence, registration, or practising certificate needed for the current role is deductible, as are union and professional association subscriptions, which have their own page on claiming subscriptions in Australia. The cost of the initial licence or qualification that gets you into the occupation is not deductible.
How much can you claim?
The full fee where it is revenue or tax-related, one fifth a year where it is capital under section 40-880, and the full amount immediately for small-business start-up costs. Worked example: a sole-trader electrical contractor pays $1,650 to a tax agent for the annual return and four BAS lodgements, $880 to a lawyer to chase an unpaid builder, and $4,400 to the same lawyer on the purchase of a workshop. The first two are deductible in full, a $2,530 deduction worth around $759 at a 30% marginal rate. The $4,400 relates to acquiring a capital asset, so it forms part of the workshop’s cost base rather than being claimed under section 40-880.
| Fee | Treatment |
|---|---|
| Tax agent, BAS agent, tax advice, audit attendance | Deductible (tax-related expense) |
| Debt recovery, contracts, employment disputes | Deductible |
| Buying a business, defending ownership of assets | Capital; five years under s40-880 or added to cost base |
| Start-up structuring advice, incorporation fees | Immediate for small business entities |
| Fines, penalties, and the ATO general interest charge | Not deductible |
| Employee licence and registration renewals | Deductible |
| Initial qualification or licence to enter an occupation | Not deductible |
GST on professional fees
Australian professional services are taxable supplies, so a GST-registered business claims the full 10% input tax credit on fees used in the business, including fees that are capital for income tax. You need a valid tax invoice for anything over $82.50. Overseas advisers are different: once you give them your ABN and confirm you are registered, they should not charge GST, and the reverse charge only applies if you would not have been entitled to a full credit. The Australian GST and BAS guide covers the mechanics.
Record-keeping requirements
Keep the engagement letter, every invoice, and for lawyers an itemised account that separates revenue work from capital work. A single “legal services” invoice covering both a debt dispute and a property purchase will not support a full deduction. Business records must be kept for five years from when the record was prepared or the transaction completed, whichever is later. See the Australian record-keeping guide for formats.
How to claim, step by step
- Sort each fee by the advantage it secured: income-earning activity, tax affairs, or capital asset.
- Claim revenue and tax-related fees in full in the business schedule or at the cost of managing tax affairs label on the individual return.
- For capital fees, check whether the small-business start-up rule applies; if not, claim one fifth a year under section 40-880 or add the fee to the asset’s cost base.
- Claim the 10% GST credit on the next BAS with a valid tax invoice.
- Employees: claim renewal fees for licences and registrations as other work-related expenses, with the renewal notice as evidence.
- Keep the itemised invoices for five years.
Common mistakes
- Deducting legal fees on buying a business or property outright instead of over five years or in the cost base.
- Missing the immediate start-up deduction and spreading structuring advice over five years unnecessarily.
- Employees claiming the cost of their initial licence or degree as a renewal.
- Forgetting that tax agent fees for an individual return are deductible in the year paid.
- Paying GST to an overseas adviser who was never given the ABN.
Software that helps
- Dext captures adviser invoices from email and attaches them to the transaction for the five-year record.
- ExpenseFlow reads legal and accounting invoices with frontier vision AI, explains under each line whether a fee is a running cost or belongs to an asset, lowers its confidence for review when the invoice names a transaction without saying what was acquired, flags overseas adviser bills that need reverse-charge treatment, and syncs the approved bill to Xero with the document attached, or to QuickBooks Online as a coded bill.
- Xero maps professional fees to their own account so the BAS and the return pick them up without re-sorting.
FAQ
See the answered questions above for tax agent fees, capital legal costs, the five-year rule, employee registration fees, and GST credits.
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