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Edited version of private ruling
Authorisation Number: 1011905343090
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Ruling
Subject: Deduction for legal expenses
Question and answer:
Are you entitled to a deduction for legal fees in relation to a work cover claim?
Yes.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts
You have incurred legal expenses.
The legal fees were in relation to appealing a work cover decision.
You appealed a work cover decision to cut your payments and send you back to work.
You were successful in your appeal.
You received back payment which had tax withheld from it.
Relevant legislative 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 a loss or outgoing to the extent that it is incurred in gaining or producing assessable income and is not of a capital, private or domestic nature.
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 (Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; (1946) 8 ATD 190). Legal expenses take the nature of an outgoing of a capital nature or an outgoing on account of revenue from the purpose of incurring the expenditure. It is necessary to consider the reason for which legal expenses are incurred, that is the object in view when the legal proceedings were undertaken.
You advised that you incurred legal expenses in relation to securing back payments for loss of income from Workcover. Your payments were cut off and you were returned to work.
You therefore sought legal advice and assistance. As a result of the advice and assistance, you were granted a lump sum from work cover.
The lump sum payment that you receive from work cover is assessable and included in your taxable income. Therefore, legal expenses incurred in pursuit of this income are deductible in the year you incurred it.