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Edited version of your written advice
Authorisation Number: 1051347564977
Date of advice: 12 March 2018
Ruling
Subject: Legal Expenses
Question 1
Can you claim a deduction for legal expenses of $XX,XXX.XX incurred in pursuing a workers compensation payment for lost earnings?
Answer
Yes
This ruling applies for the following period(s)
Year ending 30 June 2016
The scheme commences on
1 July 2015
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You suffered an injury due to being forced to work in an unsafe workplace.
You were denied workers compensation by your employer.
You engaged Legal Practice to pursue your workers compensation claim for lost wages through the Industrial Relations Commission.
You incurred legal costs of xxxx.
Relevant legal provisions
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
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 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 allowable under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered. The nature or character of the legal expenses follows the advantage which is sought to be gained by incurring the expenses. If the advantage to be gained is of a capital nature then the expenses incurred in gaining the advantage will also be of a capital nature.
In your case the legal expenses incurred by you were to recover unpaid weekly compensation payments that are loss of earnings and is therefore revenue in nature and not a capital receipt. There is a clear connection between your assessable income and the expense.
Your legal expenses are deductible as they were incurred in gaining your assessable income and are deductible under section 8-1 of the ITAA 1997.
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