Private ruling: Deductions
Date of advice: 2 March 2018
Published: June 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to a deduction for the reimbursement to your client? | A1: Yes

Relevant facts and circumstances: You are a professional. You reimbursed your client for wrong advice provided to them. You did not seek reimbursement through indemnity insurance.

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. An expense which is incurred exclusively for the purpose of earning your income is fully deductible (section 8-1 of ITAA 1997). However, if the expense contains a private proportion, the expense is not fully deductible and must be apportioned. In your case you provided advice to your client which resulted in them being out of pocket. You reimbursed your client the amount out of pocket amount. This amount of is an allowable deduction as it arose in the course of you providing financial advice to your client. Accordingly, you are entitled to a deduction under section 8-1 of the ITAA 1997.