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Edited version of your written advice
Authorisation Number: 1051451826884
Date of advice: 12 November 2018
Ruling
Subject: Professional indemnity insurance costs
Question
Are you entitled to a tax deduction for the cost of professional indemnity ‘run off’ insurance for the trustee company, of which you were sole director, which has closed down?
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 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.
Professional indemnity insurance was a requirement of the income earning activities of the Trust.
Therefore, the costs you incur for professional indemnity ‘run off’ insurance, as a director (or former director) of the Trustee company, after the Trust business ceased is relevant and incidental to the gaining or producing of your assessable income in earlier years of income, and the expense is deductible under section 8-1 of the ITAA 1997.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are an Australian resident for tax purposes
You were the sole director of the company
The business was run through a trust structure and was closed down in 20XX
You have continued the Professional indemnity “run off” insurance.
The schedule accompanying the Insurance policy refers to the insurance coverage as a “Professional Indemnity Policy”.
The insurance policy specifically notes that the insurance “Run-Off Cover”, stating that the cover offered under this policy “shall only be in respect of acts, errors or omissions resulting from work completed on or before XX/XX/20XX”, being the date on which the business ceased.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1