Private ruling: Medical expense tax offset and work related expenses
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 June 2012

Ruling: Q1: Do the net costs associated with your physiotherapy treatment whilst overseas qualify as eligible medical expenses for the purposes of the medical expenses tax offset? | A1: Yes. | Q2: Are you entitled to claim a deduction for expenses incurred in obtaining your original visa? | A2: No | Q3: Are the expenses (including visa application fee, agency fee, return airfare and accommodation) associated with renewing your visa deductible as work related expenses? | A3: No. | Q4: Are you entitled to claim a deduction for the cost of your return airfare? | A4: No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. Medical expenses Whilst travelling overseas you were injured. You were unsuccessfully treated for the injury overseas. You then returned to Australia to have further surgery. The legally qualified medical practitioner which treated your injury referred you for therapeutic treatment. The legally qualified medical practitioner requested that you continue your therapeutic treatment whilst you returned overseas to work. A referral letter along with your x-rays and history was sent directly to a specific therapist located in the country you were travelling to instructing them on the treatment you required. Your private health insurance did not cover the overseas treatment. Work Related Expenses You worked overseas for an extended period of time. You paid for a return airfare. You worked in three different locations during your stay. You paid for three visas during this time. You were reimbursed for the one of the visas by your employer as part of your employment contract. Whilst on vacation you exited the country to renew your visa. Due to unforeseen circumstances you have to pay for extra costs such as airfares, accommodation and extra processing fees in relation to the visa application.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P | Income Tax Assessment Act 1936 Subsection 159P(1) | Income Tax Assessment Act 1936 Subsection 159P(4) | Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Detailed Reasoning - Medical expense tax offset: A medical expenses tax offset is available under subsection 159P(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer pays eligible medical expenses in an income year for themselves or a dependant who is an Australian resident. The medical expenses tax offset is only available if the amount of medical expenses, after being reduced by any entitlement to reimbursement from a health fund or government authority such as Medicare, exceeds the threshold amount. The amount of net medical expenses tax offset you can claim will now depend on your level of income. You will be able to claim an offset of 10% of your net medical expenses over $5,000 if you have an adjusted taxable income (ATI) above: · $84,000 if you are single, or · $168,000 if you are a couple or family The family threshold will increase by $1,500 for each dependent child after the first. If your ATI is below these income thresholds, you are not affected by this change and can continue to claim an offset of 20% of your net medical expenses over the relevant threshold amount. For the 2012-13 financial year the threshold amount is $2,120. Please note that the threshold amount is subject to indexation and will change in future income years. Therapeutic treatment Subsection 159P(4) of the ITAA 1936 defines medical expenses which are eligible for the medical expenses tax offset. Paragraph (d) of the definition of medical expenses in subsection 159P(4) of the ITAA 1936 includes payments for therapeutic treatment administered by direction of a legally qualified medical practitioner. It was held in Case A53 69 ATC 313; 15 CTBR (NS) Case 30 that the mere suggestion or recommendation by a medical practitioner that the patient undergoes therapeutic treatment is not sufficient for the payment to qualify as medical expenses. The patient would have to be referred by a medical practitioner to a particular person for specific treatment. The general concept of therapeutic treatment is concerned with healing or curing, rather than preventing the need for therapy. Therapeutic treatment involves the exercise of professional skill in the medical field in a way which normally involves the person administering the treatment using drugs or physical or mental processes of one kind or another for the purpose of curing or managing the disease or ailment Although the treatment must be administered by direction of a legally qualified medical practitioner, the treatment need not be administered by such a practitioner. However, it is not necessary that the payments be made to a resident of Australia or that they are paid in Australia. Therefore, medical expenses paid during an overseas trip may qualify for the tax offset. In your case, your legally qualified medical practitioner requested that you continue with your therapeutic treatment when you travelled back overseas. A referral letter along with your x-rays and history was sent directly to a particular therapist so that they could continue your treatment. The out of pocket expenses you have paid for therapeutic treatment whilst overseas are eligible medical expenses for the purposes of the medical expenses tax offset and you are entitled to include the net costs in the calculation of the medical expenses tax offset. | Detailed Reasoning - Work related expenses: Work related expenses generally fall for consideration under section 8-1 of Income Tax Assessment Act 1997 (ITAA 1997). This section 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 capital, or are of a capital, private or domestic nature. The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) the High Court stated that: For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing assessable income" mean in the course of gaining or producing such income. The expenditure must therefore be related to the production of assessable income, or, in other words, the occasion of the loss or outgoing must be found in whatever is productive of assessable income. Expenses associated with obtaining a visa A visa is an endorsement on a passport or similar document, signifying that the document is in order and permitting its bearer to travel into or through the country of the government issuing it. The expenses associated with acquiring a visa relate primarily to the taxpayer's personal right to travel to an overseas destination. They closely parallel the costs associated with acquiring or renewing a driver's licence, which were characterised as being of a private nature (Case P55 82 ATC 253; 25 CTBR (NS) Case 117). As with the driver's licence, obtaining a visa is private in nature and therefore the cost of obtaining the visa is private expenditure. The fact that you obtained the visa so that you can work in an overseas country does not alter this condition. Accordingly, you are not entitled to a deduction under section 8-1 of ITAA 1997 for the cost of obtaining your original visa or the visa renewals as well as any related travel and accommodation costs. Travel to work Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless a person arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities ( Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166 ( Lunney's Case )). A deduction is, generally, not allowable for the cost of travel by an individual between home and their normal workplace as it is considered to be a private expense. The cost of travel between home and work is generally incurred to put the employee in a position to perform duties, rather than in performance of those duties (see Taxation Ruling TR 95/34). The essential character of travel between home and work is that of a private and domestic nature, related to personal and living expenses as part of the taxpayer's choice of where to live, in choosing to live away from and at what distance from work. Similarly, accommodation expenses incurred by an individual who lives away from home to carry out the duties of their employment will not be deductible. Expenses of this nature have been found to be private or incurred before or after the activity of earning assessable income. In your case you incurred costs for an airfare to travel overseas to commence a new job. The airfare is a prerequisite to the earning of your assessable income and is not an expense incurred in the course of gaining or producing that income. Further, the essential character of the expenditure is of a private or domestic nature as it arises due to the choice of where you live and where you work. Therefore, you are not entitled to claim a deduction for the return airfare as it is private in nature and not incurred in production of your assessable income.