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Edited version of private advice
Authorisation Number: 1052028924749
Date of advice: 6 September 2022
Ruling
Subject: Professional indemnity insurance costs
Question
Are you entitled to a deduction for the professional indemnity 'run off' insurance that is a requirement for your role as a director of the company that has ceased trading?
Answer
Yes.
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent they are incurred in gaining or producing assessable income. You were required to have Professional indemnity insurance while performing your income earning activities as the company director. The costs you incur for professional indemnity 'run off' insurance, as the former director of the company that has ceased trading, is incidental to the gaining or producing of your assessable income in earlier years. The cost of the insurance is deductible under section 8-1 of the ITAA 1997.
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You were a director of a company that has ceased trading.
The company was deregistered in mid-20XX.
A legal requirement of your position as director was that you needed to have professional indemnity insurance.
You are also required to have professional indemnity run-off insurance for seven years after the company ceased trading.
The policy states that it covers errors or omissions resulting from work completed before the company ceased trading.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
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