Private ruling: Professional indemnity insurance costs
Date of advice: 12 November 2018
Published: January 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: 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? | A1: 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.

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