Private ruling: Legal expenses
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for legal expenses incurred in seeking your workers compensation payments? | A1: Yes.

Relevant facts and circumstances: You incurred legal expenses to obtain additional worker's compensation payments. You received a lump sum payment representing your income maintenance arrears entitlement. Pay-as-you-go tax was withheld from this amount.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: 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 or a provision of the taxation legislation excludes it. For legal expenses to be deductible under section 8-1 of the ITAA 1997, they must have a relevant connection to the production of assessable income. Also, in determining whether a deduction is allowable the nature of the expenditure must also be considered. Legal expenses take the nature of an outgoing of a capital nature or an outgoing on account of revenue from the cause or purpose of incurring the expenditure ( Hallstroms Pty Ltd v. FC of T (1946) 72 CLR 634; 8 ATD 190). You are incurred legal expenses to obtain additional worker's compensation payments. Worker's compensation payments are assessable as ordinary income. This is the case even when you receive a lump sum payment representing a back payment of your entitlements. Therefore, your legal expenses have a relevant connection to the production of your assessable income. In addition, the advantage being sought is the payment of an amount on revenue account. As such, the character of your expenditure is also of a revenue nature. Accordingly, you will be entitled to a deduction under section 8-1 of the ITAA 1997 for legal expenses you incurred in seeking additional worker's compensation payments.