Reference no: EM133256846

Case: Caitlin Ahmed owns and operates a cat grooming business called "Cat Friendly". She is registered as a sole trader and has her own Australian Business Number. Ms. Ahmed is also registered for GST as she earns more than $75,000 per annum.

She works for 12 hours a day, 6 days a week, from home, and she also visits her clients' homes to undertake the cat grooming. Ms. Ahmed visits an average of 10 clients a day at their homes. She also grooms cats at her own home an average of five times a week. When she travels to a client's residence, she uses a specially modified cat grooming van.

A rival business called "Cat Amor" was jealous of Ms. Ahmed's business. Cat Amor decided to write an untrue statement on Instagram about Ms. Ahmed's "Cat Friendly" business, saying that it was filthy, the service was poor, and cats in general are harmed when they are groomed. The publication of this statement affected Ms. Ahmed's business. Hence, Ms. Ahmed brought a defamation claim, a "libel suit" against Cat Amor because the published statement was untrue. Libel is defined as a published false statement that damages a person's reputation.

The legal proceedings were commenced in the District Court of NSW. However, it was settled at mediation for an undisclosed amount. Ms. Ahmed was invoiced by her legal firm for $100,000, including GST, for defending the claim against Cat Amor. Subsequently, Cat Amor withdrew the article published on Instagram. Ms. Ahmed informed you that she incurred these legal expenses as part of her income producing structure and not income producing processes.

Question 1: Is Ms. Ahmed's travel expenses an allowable deduction or a private outgoing?

Question 2: Advise Ahmed as to the deductibility of legal expenses in relation to the defamation matter?