1012422499803 | Legal database

Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012422499803

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Deductibility of legal expenses

Question and answer:

Are you entitled to a deduction for legal expenses incurred in pursuing workers compensation entitlements?

Yes.

This ruling applies for the following period:

1 July 2002 to 30 June 2004.

The scheme commenced on:

1 July 2002.

Relevant facts and circumstances:

You suffered a workplace injury.

You took legal action to pursue a workers compensation claim.

As a result of that legal action you received a lump sum payment, comprised of weekly income payable to you under the provisions of workers compensation legislation.

You incurred and paid legal fees in pursuit of your workers compensation entitlements.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Broadly, section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing your assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

In determining whether a deduction for legal expenses is allowed under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered. The nature or character of the expense follows the advantage which is sought to be gained by incurring the expenses.

The question of the deductibility of legal expenses under section 8-1 of the ITAA 1997 has been considered by the courts.

In Romanin v. Commissioner of Taxation (2008) FCA 1532; 2008 ATC 20-055; (2008) 73 ATR 760 (Romanin's case) the taxpayer pursued proceedings to obtain income that was contractually owed to him. The requisite connection was found to exist between the taxpayer's legal expenses and the earning of the taxpayer's assessable income and the legal costs incurred in doing so were deductible under section 8-1 of the ITAA 1997.

Conclusion

We consider your circumstances to be similar to those in Romanin's case. You incurred legal expenses in pursuit of lost earnings in the form of weekly income that you were entitled to under the relevant workers compensation legislation. There is a direct connection between your legal expenses and the gaining or producing of your assessable income and the expenses are therefore deductible under the provisions of section 8-1 of the ITAA 1997. You are entitled to deduct the expenses in the financial years you incurred them.

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).