Private ruling: Deductibility of your out of pocket expenses
Date of advice: 27 October 2015
Published: October 2015
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for a portion of your out of pocket travel and medical expenses when you visit the doctor and receive medical treatment as well as obtaining a comprehensive medical statement in order for you to continue receiving income protection insurance payments? | A1: Yes.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You receive payments for income protection insurance. You travel periodically to your doctor for them to complete insurance forms and documentation in order for you to continue receiving income from your insurance policy. The appointments when you attend for this purpose are one hour, and when you attend the doctor without the need for the documentation the appointment times are less than an hour. After receiving a Medicare rebate you still have out of pocket expenses for the visits to obtain the insurance documentation. Assumption(s) None

Relevant legislative provisions: Income Tax Assessment Act1997 section 8-1. | Further issues for you to consider | N/A | Anti-avoidance rules | N/A

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. A number of significant court decisions have determined that, for an expense to satisfy the tests in section 8-1 of the ITAA 1997, it must have the essential character of an outgoing incurred in gaining assessable income (Lunney v. FC of T, Hayley v. FC of T (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166) and there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income. Where multiple purposes or objects for incurring the expense exist, an apportionment of the expense may be necessary ( Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236). Ure v. F.C. of T 81 ATC 4100; (1981) 50 FLR 219 ( Ure ) also discusses this issue of apportionment and found: …it would be a misleading half-truth to say that the object which the taxpayer had in mind or the advantage which he sought in incurring the liability to pay interest at rates of 7.5% or more was the derivation by him of interest at the rate of 1% per annum by re-lending the money which he borrowed. That was, no doubt, an object which the taxpayer had in mind: it was an advantage which he sought. In the circumstances however, characterization of the outgoing cannot properly be effected by reference to that object or advantage alone. A deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. In Commissioner of Taxation v. Anstis (2010) 241 CLR 443; (2010) 2010 ATC 20-221; (2010) 76 ATR 735 (Anstis), the Court considered the deductibility of expenses incurred by the taxpayer in undertaking her study which was a requirement to her receiving the Youth Allowance. It was found that the reason for the taxpayer incurring the expenses was not determinative of the question whether they were incurred in gaining or producing the youth allowance. The occasion of her study expenses was to be found in what she did to establish and retain her statutory entitlement to the receipts. Your case can be likened to the Anstis , in that you are required to fulfil certain requirements in order for you to receive your income protection insurance payments. The criteria that must be satisfied is that you are required to obtain certification from a doctor periodically documenting your entitlement to income payments from your income protection insurance policy. As such, it can be said that the expenses for the doctor are expenses incurred to establish and retain your entitlement to your income protection insurance payments. In your situation, you also have to attend the doctor for medical treatment, and the appointment times for this are less than an hour. When this occurs at the same time as your appointment for the insurance certification, the appointment times are one hour, to enable the doctor to review your file on your appointments during the report period, and review the previous statement as well as to prepare a medical statement in order for you to continue receiving the income from the insurance policy. Taking this into account, it is considered that you attend the doctor on those occasions for a purpose other than to only obtain your medical statement. Taxation Ruling TR 98/9 deals with the deductibility of self-education expenses. While this ruling is not specific to your circumstances, it does provide an example where expenses relating to two purposes are apportioned. Paragraph 70 of TR 98/9 states as follows: Francesco, a paediatrician, has 2 equal purposes when he decided to attend a five-day international conference on paediatrics in Singapore to be followed by a seven-day holiday in Thailand. The conference package is $2,500 ($1,000 return air fare, $500 for the cost of the conference and $1,000 for accommodation and meals at the conference venue). Francesco paid another $2,000 for accommodation, meals and car hire for the 7 day holiday in Thailand. Francesco is allowed a deduction of $1,500 for the conference cost and the accommodation and meals expenses at the conference. Only half of the return air fare ($500) is allowed as the expense was incurred for two equal purposes, one income-earning and the other private. The other expenditure of $2,000 relating to the holiday in Thailand is private in nature and not allowable as a deduction. As it is considered that your travel and medical expenses were incurred for purposes or objects other than to only obtain a medical statement, the expenses must be apportioned between those purposes or objects accordingly. As there are two purposes or objects for incurring the expenses, it is appropriate that these expenses are apportioned equally and you are therefore entitled to a deduction for half of your out of pocket expenses for travel and the doctors fee under section 8-1 of the ITAA 1997.