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Edited version of private ruling
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Ruling
Subject: Legal expenses
Question:
Can you claim a deduction for legal expenses incurred in order to have your medical expenses paid by Comcare?
Answer: No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You suffered a work related injury and were receiving worker's compensation payments in relation to that injury.
You required on-going medical attention and you were paying these medical expenses out of your own pocket.
You had tried to discuss your medical expenses with your employer and Comcare without success.
You sought legal advice and, as a result, your solicitor contacted your employer and Comcare on your behalf.
Comcare are now paying your medical expenses.
You incurred legal expenses in relation to the work carried out by your solicitor.
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.
Generally, legal expenses have been held to be deductible if the expenses are directly related to the earning of income.
In Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; (1946) 3 AITR 436; (1946) 8 ATD 190, the Court established that in determining whether a deduction 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. Dixon J stated at CLR 647 that:
...legal expenses...take the quality of an outgoing of a capital nature or of an outgoing on account of revenue from the cause or purposes of incurring the expenditure. We are, therefore, remitted to a consideration of the object in view when the legal proceedings were undertaken, or of the situation which impelled the taxpayer to undertake them.
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, you have incurred legal expenses in order to have your medical and like services covered by Comcare. The payment of medical and like services is of a capital nature.
As the nature or character of legal expenses follows the advantage that is sought to be gained, the expenses you have incurred are considered to be of a capital nature and are not deductible.