Private ruling: Deductibility of legal expenses
Published: October 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Question and answer: | Are you entitled to a deduction for legal expenses incurred in defending your entitlement to weekly income maintenance payments? | Yes.


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. The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 56 ALR 785; (1949) 8 ATD 431 the High Court stated that: 'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.' In determining whether a deduction for legal expenses is allowable 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 which is sought to be gained by incurring the expenses. | Detailed Reasoning - Conclusion: You have incurred legal expenses in order to defend your entitlement to weekly income maintenance payments. The weekly income maintenance payments that you receive are considered assessable income. The advantage sought by incurring the legal expenses is the defence of the weekly income maintenance payments and therefore there is a clear connection between this income and the legal expenses that you have incurred. Accordingly, the legal expenses that you have incurred in defending your weekly maintenance entitlements are deductible under section 8-1 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You sustained compensable disabilities said to have arisen from your employment. | As a result of these injuries, you are entitled to receive weekly income maintenance payments. | The weekly income maintenance payments have been your only source of income. | You requested in writing permission to relocate interstate for health reasons. | You sent a second request as you had not received a response to your initial request. | You were subsequently served with a referral to a medical organisation to assess whether or not you had work capacity. | On receipt of the referral you sort an appointment with the Ombudsman for advice and assistance. A subsequent complaint was made against the party that sought this assessment. | On the advice from the Ombudsman you engaged legal representation. | After a number of exchanges between all the related parties it was determined that the referral that was made was inappropriate. | Further exchanges took place between all parties resulting in the approval of your move interstate and the continuation of your weekly income maintenance entitlements. | As a result of these proceedings you have incurred out of pocket legal expenses.