Private ruling: Deductions - work related expenses
Date of advice: 17 January 2024
Published: 26 February 2024
Ruling period: Period ended 30 June 2023
Date scheme commenced: 1 July 2022

Ruling: Q1: Are medical and travel expenses incurred for rehabilitation therapy deductible under s 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 workers compensation payments deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A2: Yes.

Relevant facts and circumstances: You suffered a physical injury at work. You are in receipt of worker's compensation payments. You do not have income protection insurance. On the advice of your psychologist, you have undertaken a particular mode of psychological treatment. You have incurred medical and travel expenses when you attend appointments for rehabilitation therapy and medical appointments. You are required to attend medical appointments to obtain medical certificates to present to the paying authority as a condition of receipt of workers compensation.

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, then the cost of that travel is considered private and domestic in nature and not an allowable deduction. In your case, the necessary connection between the outgoing and the earning of assessable income does not exist, and the medical and travel expenses incurred in attending appointments for medical treatment as part of rehabilitation are considered private and domestic in nature and are therefore not deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Travel expenses - medical certificate: Paragraph 7 of the ATO 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 weekly 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 workers compensation payments, the travel expenses incurred are deductible under section 8-1 of the ITAA 1997. The Commissioner has considered your facts and circumstances, and, in your case, you are only entitled to a deduction for travel expenses you have incurred where you travelled to obtain a medical certificate in order to establish or continue your claim for taxable worker's compensation payments.