Let’s be honest—nobody gets excited about legal fees. But if you’re running a business or managing a trust, those bills are going to land eventually. And when they do, one question always comes up:
“Can I claim this as a tax deduction?”
Short answer? Sometimes. Long answer? Let’s unpack it—without putting you to sleep.
When legal fees are deductible (and when they’re not)
Here’s the deal. If the legal cost is directly tied to generating taxable income, you’re usually good to go. But if it’s for something like setting up a trust or gifting assets? Yeah, IRD’s not handing out any favours.
Deductible legal fees include:
- Drafting or renewing a lease on income-producing property
- Preparing a Deed of Acknowledgement of Debt
- Trustee fees for managing income-generating assets
- Reviewing financial statements or getting tax advice
- Legal fees to buy a property (if your total legal costs are under $10k)
Not deductible:
- Drawing up a Trust Deed (yep, even if it took hours)
- Disputes between trust beneficiaries
- Costs tied to gifting programs
- Appointing or removing beneficiaries
- Anything that’s clearly capital and has nothing to do with income
Let’s make it real: a quick example
Say you own a small plumbing business in Hamilton. You’re turning over $250,000 a year, and your lawyer charges you $4,800 to negotiate and finalise a new lease on your warehouse.
✅ Good news: that lease directly supports your income—it’s where you run the business from.
✅ You’re under the $10,000 threshold, so even if it were a capital expense, you can still deduct it.
Result? Claim it. And maybe don’t grumble (too much) about the lawyer’s hourly rate.
Now let’s say you drop $3,500 to set up a family trust for future asset protection.
🚫 IRD says nope. That’s a capital cost—not tied to earning income—so no deduction there.
A quick stat that might surprise you
According to Xero’s 2022 Small Business Insights report:
Professional services fees (legal + accounting) typically eat up 2–5% of annual revenue.
So if you’re bringing in between $100k and $500k, that’s $2,000 to $10,000 a year just on these services.
Legal fees alone? Probably 1–2% of your revenue. It adds up fast—so knowing what’s deductible can save you hundreds (if not thousands) come tax time.
Wrap-up: check before you claim
Here’s your takeaway:
- If it helps you make money, it’s probably deductible
- If it’s about protecting capital, setting things up, or gifting? Probably not
- Keep it under $10,000/year, and you’ve got more wiggle room
Still unsure? Don’t guess—get advice. At BH Accounting, we’ll connect you with someone who actually likes reading IRD rules (weird, but true).
Because let’s face it—you’ve got better things to do than argue with your accountant about a $600 legal invoice.
This article is for information only—not legal, financial, or tax advice. Every business is different, and rules change, so don’t make major decisions based on what you read here. If you’re unsure, talk to a professional—it’s cheaper than fixing a costly mistake later.