Edited version of private ruling

Authorisation Number: 1011788681775

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Expenses - caring for your parent

Questions and answers:

1. Are you entitled to a deduction for expenses associated with the care of your parent?

No.

2. Are you entitled to a deduction for travel to medical appointments?

No.

This ruling applies for the following period

Year ended 30 June 2011.

The scheme commenced on

1 July 2010.

Relevant facts

You care for your sick parent.

You incur expenses associated with this care.

You receive payments in relation to the care from Centrelink.

Relevant legislative provisions

Income tax Assessment Act 1997 Section 8-1

Reasons for decision

Clothes, entertainment, medical expenses, prescriptions, gifts and expenses

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.

Expenditure on the daily necessities of life, for example, clothes, entertainment, medical expenses, prescriptions, gifts and travel to visit family are generally private in nature and are not incurred in gaining or producing your assessable income.

The cost of acquiring clothing is generally of a private nature as clothing has to be worn to observe dress proprieties rather than for reasons that will establish an income-earning connection. The primary purpose of medical expenditure is the preservation of life and limb and, as such, is private in nature and there is only a secondary purpose of income derivation.

The above expenses belong to your parent and the fact that you cover these costs does not mean you are eligible for a deduction. The expenses are not incurred in gaining or producing your assessable income and therefore are not deductible under section 8-1 of the ITAA 1997.

Towels, linen and babysitting

Similarly, the expenditure incurred on the above are private in nature and are not incurred while you are gaining or producing your assessable income. Even though the payment you receive from Centrelink is assessable, it is provided to you as income support because the demands of your caring role prevent you from supporting yourself through substantial paid employment.

The allowance provides you with an additional supplementary payment to assist you in your caring role. In return for these payments it is expected that you will provide full-time care in accordance with Centrelink's requirements.

The expenses incurred in purchasing towels, linen and babysitting are not deductible under section 8-1 of the ITAA 1997.

Travel to and from medical appointments

ATO ID 2001/36 considers travel expenses in relation to medical treatment and advises that these expenses are of a private nature and, as such, are not deductible under section 8-1 of the ITAA 1997.

The decision reiterates that to be deductible under the first limb of section 8-1 of the Act, the expenditure must be incurred in gaining or producing your assessable income, but expenditure which, is essentially of a private nature is not deductible.

It is a long standing principle that a taxpayer does not satisfy section 8-1 by demonstrating a causal connection between the expenditure and the derivation of income. What must be shown is a closer and more immediate connection. The expenditure must be incurred while you are in the process of gaining or producing the assessable income (Lunney v Commissioner of Taxation (1958) 100 CLR 478). These principles have also been affirmed by the High Court in Commissioner of Taxation v Payne [20001] HCA 3.

In these cases the taxpayer concerned has not been able to establish the requisite connection between travel to medical appointments and receipt of their income. The travel to and from medical appointments is considered to be private in nature and therefore not eligible for a deduction.

Summary

All of the above expenses are not eligible for deduction under section 8-1 of the ITAA 1997 as the requisite connection between each expense and the receipt of the Centrelink payment does not exist. You will continue to receive your payments from Centrelink whether or not you incur the expenses; you are not required to prove to Centrelink that you are incurring such expenses to continue receiving the payments.

This can be distinguished from the Anstis case where it is stated that all the participation and activity test requirements must be met to continue receiving payment from Centrelink. It goes on to explain that if these requirements are not met, recipients may receive a failure, which will affect their payments. They may lose their payment for up to 8 weeks if they deliberately and persistently avoid their obligations.

As outlined above, the carer payment is an income support payment that provides support to people who, because of the demands of their caring role, are unable to support themselves through substantial paid employment.

The carer allowance is an income supplement paid to someone who provides daily care at home to a person with a disability or medical condition. There are no guidelines on how care should be given in order to receive the payment.

Consequently no deduction is allowed for clothing entertainment, medical expenses, prescriptions, gifts, towels, linen, babysitting and travel.