Edited version of your written advice

Authorisation Number: 1012698967165

Ruling

Subject: Passport and vaccination costs

Questions and Answers:

1. Can you claim tax deductions for passport expenses, which were required by you for an overseas deployment to a disaster zone?

No.

2. Can you claim tax deductions for vaccination expenses, which were required by you for an overseas deployment to a disaster zone?

No.

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You are employed in a medical capacity by a state service. There is no compulsory vaccination for your role. However, you always keep yourself immunised for tetanus, hepatitis A, hepatitis B and influenza.

As a result of a teleconference of the Australian Health Protection Principal Committee convened by the Commonwealth Chief Medical Officer, your employer requested expressions of interest for an overseas operational deployment, as part of an Australian medical assistance team. However, there was no certainty the deployment would go ahead.

Criteria for participation in the deployment included having a current passport and vaccinations for numerous conditions. You already had some of the required vaccinations.

On the day before the closure of the expression of interest, you paid to receive the remaining vaccinations and also paid for a new passport (since you current passport was due to expire soon).

You applied for and were chosen for a deployment. For the deployment, you were to be paid your normal pay with no special entitlements. However, subsequently, a decision was made not to send your group overseas.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

General deductions

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 nature, private or domestic nature.

Paragraph 27 of Taxation Ruling TR 95/15 (which is about allowances, reimbursements and work-related deductions for nursing industry employees) summarises characteristics that the expense needs to satisfy to be deductible:

A number of significant court decisions have determined that, for an expense to satisfy the tests in subsection 51(1) of the Act:

(a) it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478; [1958] ALR 225; 11 ATD 404 (Lunney's case));

(b) 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 (Ronpibon Tin NL v. FC of T (1949) 78 CLR 47; 8 ATD 431); and

(c) it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344; 11 ATD 147; 6 AITR 379; FC of T v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616 (Cooper's case); Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 233; 93 ATC 4508; (1993) 26 ATR 76; FC of T v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; 2 ATR 557 (Hatchett's case)).

Passport

Expenses associated with acquiring passports relate primarily to a taxpayer's personal right to travel to any overseas destination. They closely parallel the costs associated with obtaining a driver's licence, which are characterised as being of a private nature. For example, in Case P55 82 ATC 253, the No. 2 Board of Review disallowed the claim of a taxpayer who was employed as a technician and an area supervisor. It was a condition of his employment that he hold a driver's licence as he was required to drive a company car in the course of pursuing his income-producing activities. The Board of Review ruled the expenses in question were incurred primarily to protect the taxpayer's right to drive a car and were not incurred in gaining or producing his assessable income and were essentially of a private nature. They were therefore not deductible.

In your case, you cannot claim a deduction for your passport expenses because it is an unambiguous legal principle that such expenditure is not deductible.

Vaccinations

In general, a deduction is not allowable for the cost of vaccinations to protect against infectious diseases in the work place as this is a personal medical expense and, therefore, of a private nature.

For example paragraph 127 of TR 95/15 for nursing industry workers and paragraph 170 of Taxation Ruling TR 95/19 (for airline employees) state:

A deduction is not allowable for the cost of vaccinations to protect nursing employees against the risk of contracting infectious diseases in the work place as the expense relates to a personal medical expense, and is therefore of a private nature.

A deduction is not allowable for the cost of vaccinations to protect airline employees at risk from infectious diseases in the work place as the expense relates to a personal medical expense, and is therefore of a private nature.

However, in Mansfield v. FC of T 96 ATC 4001; (1995) 31 ATR 367, the Federal Court of Australia decided that expenses of a private or personal nature may be an allowable deduction where the working environment is sufficiently abnormal and unique as to make the essential character of the expenditure work-related rather than private in nature. Whether such an expense is either private or work-related involves questions of fact and degree, and something out of the ordinary is usually necessary for the essential character of the expenditure to be seen as work-related.

In addition, paragraph 11 of Taxation Ruling TR 2003/16 (about the deductibility of protective items) provides one indicator of the deductibility of a protective item is if your use of a protective item is a requirement of your employer, work-related safety laws or an industrial agreement.

However, as explained in paragraph 46 of TR 95/15, an expense is not deductible if it is incurred at a point too soon to be regarded as necessarily incurred in the production of assessable income:

The above expenses are incurred at a point too soon to be regarded as necessarily incurred in the production of assessable income. See FC of T v. Maddalena 71 ATC 4161; 2 ATR 541 where Barwick CJ stated (ATC at 4162; ATR at 548):

'The costs to an employee of obtaining his employment does not form an outgoing in the course of earning the wages payable in the employment.'

In Steele v. Deputy Commissioner of Taxation 99 ATC 4242, the majority of the High Court adopted the principle Lockhart J enunciated in Federal Commissioner of Taxation v. Total Holdings (Australia) Pty. Limited 79 ATC 4279 in relation to deductibility of interest expense:

There are cases where the necessary connection between the incurring of an outgoing and the gaining or producing of assessable income has been denied upon the ground that the outgoing was ``entirely preliminary'' to the gaining or producing of assessable income or was incurred ``too soon'' before the commencement of the business or income producing activity. The temporal relationship between the incurring of an outgoing and the actual or projected receipt of income may be one of a number of facts relevant to a judgment as to whether the necessary connection might, in a given case, exist, but contemporaneity is not legally essential, and whether it is factually important may depend upon the circumstances of the particular case.

As ruled by the Commissioner in paragraph 31 of Taxation Ruling TR 2004/4 (about deductions for interest incurred prior to the commencement of relevant income earning activities), the deductibility of an expenditure will not be satisfied if the expenditure is 'too soon', 'preliminary' or a 'prelude'.

It is well accepted that expenditure can satisfy the positive limbs of subsection 51(1) even though it is incurred in a period prior to any expected resultant income. Even so, the majority in Steele acknowledged that those limbs will not be satisfied if that expenditure is 'too soon', 'preliminary' or a 'prelude' (see paragraph 30):

• An outgoing may be 'too soon' in the sense that a significant delay between the incurring of an outgoing and the actual or projected receipt of income may be relevant in determining whether expenditure is deductible; and

• An outgoing may be 'too soon' in the sense that the advantage conferred by the expenditure is necessary for, but not to be found 'in', the regular income earning activities ('functionally too soon'). Such a situation can arise even in the absence of the above mentioned 'significant delay'.

In your case, there are no factual circumstances which indicated that a new 'temporary' employment would have arisen or that you would have been ceasing your current employment. Accordingly, it is reasonable to conclude that you would have been performing, in substance, and likely, in form, a mere secondment, as a variation of some element of your work duties, i.e. merely a change of location of work duties in your current role. Consequently, it is arguable that the cost of vaccinations was not incurred too soon or preliminary to gaining their assessable income from the deployment.

On the other hand, it is noted that you incurred the cost of vaccinations prior to volunteering to take part in the deployment. You incurred the cost so that you would be eligible to put in an expression of interest. At that stage, the prospect of you being qualified to be deployed or being required for deployment overseas was unclear. It is therefore arguable that the cost of vaccinations was incurred at a point too soon.

It was a prelude to you being in a position whereby you may commence to derive income from the deployment. Arguably, the cost of the vaccinations was functionally too soon in the sense that the vaccination is necessary for but not found in the income earning activity, namely the deployment.

You were not 'unequivocally committed' to being deployed as there was no certainty that your employer would be asked to supply staff or that you would be selected for the deployment.

Furthermore, as current vaccinations of those conditions were not a requirement of your existing role in the medical profession, while you remained with the same employer, the cost of the vaccinations did not have sufficient connection with the earning of salary from your then present role. It is therefore arguable that the cost of the vaccinations was not incidental to the gaining of assessable income at the time.

On balance, it is our view is you incurred the cost of vaccinations at a point too soon to have sufficient nexus with your expected assessable income from the deployment. Consequently, the cost of vaccination was not incurred in gaining or producing your assessable income.

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