Private ruling: Deductions
Date of advice: 1 July 2024
Published: 12 August 2024
Ruling period: Year ended 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Are you entitled to a deduction for the cost of your classes and equipment to manage your medical condition? | A1: No.

Relevant facts and circumstances: You are employed at multiple work sites. You work a broad number of hours per week. You need to carry heavy items and work at heights and go up and down stairs. You need to be physically fit to carry out your work duties. You have a medical condition. You attend classes and use a range of exercise equipment daily to manage your condition.

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

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for expenses to the extent 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. A deduction will not be allowed under section 8-1 of the ITAA 1997 for expenses which are of a capital, private or domestic nature, where they lack sufficient nexus to income production, or if they are incurred in gaining or producing exempt income or where a provision of the tax law prevents it. The High Court majority in Commissioner of Taxation v Payne [2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income ( Commissioner of Taxation v Day [2008] HCA 53). The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 where it was held that: ... to come within the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income... Taxation Ruling TR 2020/1 notes in part: 16. For expenses incurred by employees, the fundamental question is whether an expense is incurred in the course of earning employment income. This involves considering the proper scope of the particular taxpayer's work activities to determine if the circumstances of the expense have a sufficiently close connection to earning the employment income. 19. More difficult are cases where an expense ordinarily bears the characteristics of an everyday personal expense. Although generally not deductible, a deduction may be allowed if the particular employment context creates a close connection between the expenditure and the production of assessable income through work activities; that is to say, 'the occasion of the expenditure is to be found in the income-earning activity itself' 22. The requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income. Even if the positive test of section 8-1 is satisfied, employees cannot claim deductions for outgoings that are private in nature. The term 'private' is not defined in the Act but has its ordinary meanings of 'personal'. Except in very limited circumstances, gym fees and other fitness expenses (such as skipping ropes, weights and other fitness equipment) are private expenses. You can't claim a deduction for these expenses. This is the case even if you're required to pass medical examinations and fitness tests to maintain your employment. However, there are very limited circumstances where you can claim a deduction if your employment requires an extremely high level of fitness. This means strenuous physical activity is an essential and regular element of your work. | Detailed Reasoning - Fitness and recovery expenses: Generally, expenses incurred in the maintenance of physical fitness and wellbeing are not deductible as they are dependent on the employee's personal circumstances, to enable them to be sufficiently healthy to undertake both private and work activities. These expenses are in the nature of everyday personal expenses and are not deductible. Similarly, an expense that restores standard health, comfort and mobility after performing work activities does not have the requisite connection to producing income and is of a private character. Fitness related expenses can be deductible where a taxpayer is required to maintain a very high level of fitness as a necessary aspect of their work activities, well above the profession's general standard. Expenditure incurred to maintain a taxpayer's health and wellbeing are incurred to overcome an illness or injury sustained by the taxpayer or to maintain a taxpayer's good health. Such expenses are not incurred in the course of gaining or producing a taxpayer's assessable income. They are private in nature and are not deductible. In Kemp v. Federal Commissioner of Taxation (1992) 110 ALR 375; (1992) 24 ATR 75; 92 ATC 4542, Justice Hill noted that in Sun Newspapers Ltd v FC of T (1938) 5 ATD 87 expenses were distinguished between those of a recurring nature that are a working expense, and are deductible, and recurrent expenses on maintaining the asset or income earning apparatus, which are capital in nature. An example provided of deductible recurrent expenditure was training expenses for a professional footballer. Applying this principle to fitness and recovery expenses, training expenses to have the body at the relevant standard of physical fitness would be regarded as a working expense and deductible. Recovery expenses involve maintaining the asset (that is, the body) and are considered capital or private in nature. | Detailed Reasoning - Application to your circumstances: You attend classes and use equipment to assist with your medical conditions and to maintain your level of fitness to carry out your work. Your level of fitness is no higher level than that expected for your position. You do not fit into the category of requiring a fitness level over and above that usually expected in an area of work. Your classes and equipment assist you in your day-to-day life of maintaining your fitness and managing your medical conditions. The classes and equipment are considered to be private in nature and are therefore not an allowable deduction under Section 8-1 of the ITAA 1997.