Private ruling: Deductions
Date of advice: 29 July 2024
Published: 9 September 2024
Ruling period: Year ended 30 June 2023 | Year ended 30 June 2024
Date scheme commenced: 1 July 2021

Ruling: Q1: Are medical and travel expenses incurred to attend medical appointments for treatment and or medication deductible under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Are travel expenses incurred to attend medical appointments to obtain medical certificates required to be presented to the paying authority as a condition of receipt of payments deductible under section 8-1 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: You were a member of the Australian organisation for a number of years. A couple of years ago you left the organisation due to a medical condition. Since you left you have been receiving a percentage of your salary that you earned prior to leaving the organisation. This income is taxed at your marginal tax rate. The income is paid by another organisation. As a condition of receiving your income, you were required to attend numerous medical appointments, all of which were not at your regular place of work to obtain medical certificates in order to continue receiving the benefit. Most of the medical expenses were paid for by the second organisation. Your travel expenses to and from medical appointments were not covered.

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

Reasons for decision: Detailed Reasoning - Travel expenses - medical treatments: 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 or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. Outgoings that are of a capital, private or domestic nature, or relate to the earning of exempt income are excluded from being deductible. Paragraph 8-1(2)(b) of the ITAA 1997 specifically denies a deduction for expenditure that is of a private or domestic nature. Expenditure that is private in nature generally relates to a taxpayer in their personal or private capacity. To ascertain if an expense is necessarily incurred for the purpose of gaining or producing income is a question of fact and degree. Generally medical expenses have no direct connection to the gaining or producing of assessable income and relate to a personal medical condition. Medical expenses are usually a prerequisite to the earning of assessable income. There is typically insufficient connection to the gaining or production of assessable income for a deduction to be allowed. This is the case even though a taxpayer may, as a matter of practicality, need to incur the expenditure to earn assessable income. It is a long-standing principle that a taxpayer does not satisfy section 8-1 of the ITAA 1997 merely by demonstrating some causal connection between the expenditure and the derivation of income. What must be shown is a closer and more immediate connection. The expenditure must be incurred 'in the course of' gaining or producing the assessable income ( Lunney v. Commissioner of Taxation, Hayley v. FC of T (1958) 100 CLR 478; [1958] HCA 5; (1958) 11 ATD 404; (1958) 7 AITR 166). These principles have been affirmed by the High Court in Commissioner of Taxation v. Payne (2001) 202 CLR 93; [2001] HCA 3; 2001 ATC 4027; (2001) 46 ATR 188. If a person incurs an expense for medical treatment and the necessary connection between the outgoing and the earning of assessable income does not exist, then the expense will not qualify for a deduction under section 8-1. The expense is generally private and domestic in nature and not an allowable deduction. If you undertake the travel to receive medical treatment or medication, then the cost of that travel is considered private and domestic in nature and not an allowable deduction. | Detailed Reasoning - Travel expenses - medical certificate: Paragraph 7 of Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 states that if an employee can deduct a work expense under section 8-1 to the extent that it is incurred in gaining or producing assessable income (the positive test) and also meets the negative tests; the deductions tests under section 8-1 are met, and the work expense can be deducted if the substantiation requirements of Division 900 of the ITAA 1997 are satisfied. To meet the deductions tests you must: • have incurred the expense, that is, spent the money yourself and not have been reimbursed • demonstrate how the expenditure directly relates to earning income; that there is a nexus between the expenditure and assessable income • be able to substantiate the expense, that is, you must have records to prove the expense was incurred by you. Where you are required to fulfil certain requirements to continue to be eligible to receive regular supporting payments, that is, a requirement to obtain periodic medical certificates from a medical practitioner, it can be said that the travel expenses for the medical certificates are expenses incurred to establish and retain your income supporting payments. Where there is a requirement to provide a medical certificate at regular intervals to the paying authority as a condition of receipt of DVA payments, the travel expenses incurred are deductible under section 8-1 of the ITAA1997. Therefore, you are able to claim a deduction for your travel expenses to and from medical appointments to obtain a medical certificate in order to continue receiving payments. You are not entitled to a deduction for travel to and from medical appointments where you are seeking treatment or medication.