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n October 2019, Brund Ltd, a manufacturer of wood home heaters, was taken to court...

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Accounting

n October 2019, Brund Ltd, a manufacturer of wood home heaters, was taken to court by one of its competitors, Costa Air P/L on the ground that Brund had sought to enter into agreements with distributers that they would only stock Brunds products. Although Brund incurred $60,000 in legal costs in defending the action, the matter was later settled out of court with Costa Air.

The terms of the agreement provided that Brund would pay Costa Air $400,000 immediately and an amount equal to 1% of its profits for the next two years. For the tax year 2019/20, this is estimated to be $360,000, and the year after, $440,000.

Advise Brund as to the deductibility of the above expenditure for the 2019/20 tax year.

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