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Edited version of your private ruling
Authorisation Number: 1012337739872
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Ruling
Subject: Legal expenses
Question
Are you entitled to a deduction for legal expenses relating to your income protection claim?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You incurred legal expenses relating to your successful claim under your income protection policy.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 allows a person to claim a loss or outgoing that is incurred in gaining or producing assessable income so long as the loss or outgoing 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) 3 AITR 436; (1946) 8 ATD 190. The nature or character of the legal expenses follows the advantage that 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.
You incurred legal expenses in order to obtain the income protection insurance payments resulted in you gaining assessable income. Thus, there is a clear connection between the assessable income and the expense. Accordingly, you are entitled to a deduction for legal expenses.
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