ROSSITTO v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal)

Decision date: 23 April 1998

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BH Pascoe (Senior Member)

The applicant has sought review of a decision of the respondent to disallow an objection against assessments of income tax for the years ended 30 June 1993, 1994, 1995 and 1996. Although not claimed in the returns of income lodged in respect of those years, the applicant sought by objection the allowance as a deduction of motor vehicle expenses in each year.

2. In July 1992 the applicant severely damaged his knee in a work-related injury and liability was accepted for compensation. As a result of the injury the applicant has been unable to perform his previous full duties as an aircraft maintenance engineer and the amount which he can earn in suitable employment is less than that which he would be capable of earning if not injured. The difference is provided pursuant to section 19 of the Safety, Rehabilitation and Compensation Act 1988 (``the Compensation Act''). The applicant argued that the cost of regular travelling by motor vehicle to his doctor, physiotherapy treatment and specialist doctors was necessarily incurred in order to derive the compensation component of his assessable income.

3. At the hearing the applicant represented himself and the respondent was represented by an officer of the respondent. Evidence was given by the applicant.

4. The motor vehicle expenses of the applicant were claimed under section 82KX of the Income Tax Assessment Act 1936 (``the Assessment Act'') which provides for the deduction to be calculated by use of the prescribed per kilometre rate. This method of claiming such expenses is available only where the number of kilometres travelled by a taxpayer's car during the year of income in the course of producing assessable income of the taxpayer was not more than 5000. Although not stated in the objection, the applicant stated in a statement of facts and contentions filed with the Tribunal and at the hearing that the amounts claimed represented 5000 km at the prescribed rate in each of the four years. This calculation produced claimed deductions of $2795, $2845, $2940 and $2940 respectively in each of the four years in question. No evidence was provided of the precise calculation or records of the distance of 5000 km nor of the type of vehicle used. The applicant stated that he had physiotherapy treatment on two to three visits per week and saw his general practitioner monthly. He maintained that the physiotherapy visits were generally either on the way from work to home or from home to work and that it involved additional travel of approximately 34 km. It is clear that if the Tribunal is prepared to agree with the applicant on the substantive question of entitlement to a deduction, the

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ATC 2095

matter would need to be remitted to the respondent for consideration of the quantum of the deduction and compliance with the substantiation provisions in Subdivision F of Division 3 of the Assessment Act.

5. Mr Rossitto said that he suffered a knee injury on 1 June 1992. After some sick leave he returned to light duties until an operation on his knee on 27 July 1992 which was unsuccessful. He returned to work in September 1992 on a graduated return to work program which commenced with working four hours on each of three days per week and a progressive build up to full-time over two months. He stated that the estimate of the compensation component of his total remuneration in the 1994 and 1995 years was approximately 45% but reduced to some 25-30% in subsequent years. Mr Rossitto argued that section 37 of the Compensation Act made the payment of compensation conditional on the undertaking and maintenance of a rehabilitation program and the cost of complying with such rehabilitation program was necessarily incurred in order to earn the compensation income. He argued further that the treatment program was designed to enable him to maintain an ability to perform his work duties at a reasonable level and the cost was relevant to his total assessable income. He maintained that, if it were not for the injury, he would be earning the same level of income without incurring the additional travel costs. Although the medical treatment costs were paid pursuant to section 16 of the Compensation Act, this excludes reimbursement for travel expenses except where the journey for the purpose of obtaining medical treatment exceeds 50 km.

6. For the respondent it was submitted that the claimed costs of travel were of a private or domestic nature within the principle established in
Kenneth Edmund Lunney v FC of T (1958) 11 ATD 404; (1957-1958) 100 CLR 478. It was argued that, in the same way as travelling to a place of employment is not deductible, travel to receive medical treatment, even if it could be said that such medical treatment is a prerequisite to earning income is equally non- deductible. Alternatively, it was submitted that the expenditure on travel was neither relevant nor incidental to the derivation of assessable income but incurred in relation to personal health and welfare. It was further submitted that the treatment program was not to ensure continuance of compensation payments but to repair and manage the damage to the knee to enable the compensation payments to be reduced and possibly end.

7. Mr Rossitto said that, initially, his rehabilitation program was a specific program under the direction of the Industrial Work Conditioning clinic. This formal program ceased in August 1994. Since then his program has been arranged by his physiotherapist with certificates being required from his doctor at regular intervals for assessment of the current level of incapacity. Although he believes that the need for treatment will continue indefinitely he has not made any claim for compensation for permanent impairment pursuant to section 24 of the Compensation Act.

8. Section 37(7) of the Compensation Act provides:

``Where an employee refuses or fails, without reasonable excuse, to undertake a rehabilitation program provided for the employee under this section, the employee's rights to compensation under this Act, and to institute or continue any proceedings under this Act in relation to compensation, are suspended until the employee begins to undertake the program.''

Subsection (3) of section 37 requires a rehabilitation authority, in making a determination that an injured employee should undertake a rehabilitation program, to have regard to:

``...

• (a) any written assessment given under subsection 36(8);
• (b) any reduction in the future liability to pay compensation if the program is undertaken;
• (c) the cost of the program;
• (d) any improvement in the employee's opportunity to be employed after completing the program;
• (e) the likely psychological effect on the employee of not providing the program;
• (f) the employee's attitude to the program;
• (g) the relative merits of any alternative and appropriate rehabilitation program; and
• (h) any other relevant matter.''

As can be seen the purpose of a rehabilitation program appears to be directed primarily at a

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ATC 2096

reduction of future compensation costs by improvement in an employee's ability for future employment. Nevertheless, it is the applicant's argument that the program and regular treatment was a requirement of ongoing employment.

9. The difficulty with Mr Rossitto's argument is that of distinguishing between the necessity of travelling to his place of employment which is a necessary prerequisite to the earning of his normal employment income and the necessity of travelling to a place of medical treatment which he argues is a necessary prerequisite to the derivation of his compensation component of assessable income. In Lunney (supra), which was concerned with the cost of travel from home to work, Williams, Kitto and Taylor JJ said (at ATD page 413; CLR pages 498-499):

``... It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.''

Professor R.W. Parsons in his book Income Taxation in Australia comments (at page 471) that this decision ``... has hardened to a point where it is not open to re-examination for its validity as an expression of the principle of relevance''. The ``essential character of the expenditure'' test has been adopted in several subsequent decision of the Courts such as
Handley v FC of T 81 ATC 4165; (1981) 148 CLR 182.

10. Mr Rossitto sought to draw a nexus between travel for medical treatment, the receipt of medical treatment and the derivation of assessable income. However, it is difficult to separate the private and personal nature of medical treatment and its relationship with the derivation of income. In
FC of T v Cooper 91 ATC 4396, a professional footballer was denied the cost of special dietary requirements as, although such cost was said to be required to enable him to perform to the necessary standard to derive income from his profession, it was held that the essential character of the expense remained as being of a private nature as a part of the ordinary requirements of living. Whilst it may be said that Mr Rossitto was required to undertake treatment by his employer, there is, and certainly has been since 1994, a significant element of personal choice in the frequency of treatment, the practitioner who provided the treatment and the doctor who provides the regular certificates and monitoring.

11. Apart from considering the travel to obtain medical treatment as being relevant to that treatment rather than the derivation of assessable income, I am unable to distinguish the cost of travelling to a place of work from which assessable income is derived and travel to a place of medical treatment which may be a prerequisite to deriving a part of that assessable income.

12. In my view the claim for travel costs by the applicant must fail as not having the required nexus with the derivation of assessable income and, in any event, being of a private or domestic nature. Whilst I can appreciate the equity argument advanced by Mr Rossitto when comparing his position with other workers earning the same gross income and who have no ongoing injury requiring treatment, I am unable to see that the provisions of section 51 of the Assessment Act operate so as to allow the deduction claimed. Consequently, the decision under review is affirmed.