Issue
Whether a taxpayer's legal expenses in pursuing a personal injury claim are deductable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
Decision
No. The expenditure was incurred attempting to recover assessable income of another taxpayer and was therefore not deductible under section 8-1 of the ITAA 1997.
Facts
The taxpayer was an employee and director of a private company.
The taxpayer was injured while undertaking a non-work related activity. As a result, the private company suffered a loss of income. The taxpayer's income remained unaltered.
The taxpayer sued a third party for damages including a loss of income.
Reasons for Decision
To be deductible under section 8-1 of the ITAA 1997, a loss or outgoing must be relevant and incidental to gaining or producing the taxpayer's assessable income ( Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431).
The income lost was not that of the taxpayer, but that of the taxpayer's private company. Section 8-1 of the ITAA 1997 requires that an expense is incurred in gaining or producing your assessable income. The taxpayer incurred the expense in an attempt to recover assessable income for another taxpayer, that is, the company. Therefore, the expenditure incurred is not allowable as a deduction.