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Edited version of private advice
Authorisation Number: 1051779368689
Date of advice: 26 November 2020
Ruling
Subject: Income tax - professional indemnity insurance costs
Question 1
Can you claim a deduction for your proportion of the Professional Indemnity 'run off' insurance that you paid of $XXXX for the company, which you were an Officer of and 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 to which they are incurred in gaining or producing assessable income. Professional indemnity insurance was a requirement of the income earning activities of the company while you were an Officer. Therefore, the costs you incurred for the 'run off' insurance, as an Officer of the company, after the business ceased is relevant and incidental to the gaining or producing of your assessable income and is deductible under section 8-1 of the ITAA 1997.
Question 2
Can you claim a deduction for the cost of your annual professional indemnity insurance as an employee?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You were an Officer and an employee of the company a company that was put into receivership and ceased trading.
The company was unable to pay their Professional indemnity "run off" insurance.
The "run off" insurance was then paid for by the former Officers and Directors of the company.
In your capacity as a Public Officer, you paid an amount your share of the Professional indemnity "run off" insurance.
In the Investment Banking industry, it is common practice for individuals to obtain their own insurance policies for professional indemnities as an employee.
This insurance is a requirement of your current position and included in your employment contract
You paid an amount for Professional indemnity insurance.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1