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Ruling

Subject: Work related expenses

Question:

Are you entitled to a deduction for private health insurance?

Answer:

No

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You arrived in Australia on a temporary business entry visa.

You earn assessable income in Australia.

You are not eligible for Medicare.

It was a requirement of your visa that you have adequate health insurance.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

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.

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) 78 CLR 47; 56 ALR 785; 8 ATD 431 the High Court stated that:  

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable it must be incidental and relevant to that end. The words incurred in gaining or producing the assessable income mean in the course of gaining or producing such income.

It is a long standing principle that a taxpayer does not satisfy section 8-1 of the ITAA 1997 merely by demonstrating a casual 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 in gaining or producing your assessable income (Lunney v. Commissioner of Taxation (1958) 100 CLR 478). These principles have been affirmed by the High Court in Commissioner of Taxation v. Payne [2001] HCA 3.

Generally medical expenses have no direct connection to the gaining or producing of assessable income as the purpose of the expense is to return the taxpayer to health. There is insufficient connection to the gaining or production of assessable income for a deduction to be allowed as the expenditure is too remote.

In Taxation Determination TD 93/22, a professional sportsman was not entitled to a deduction for contributions to a private health fund, even though it was a condition of the employment that the person takes out the insurance. The cost of private health insurance was considered not to be sufficiently connected to the sporting activities that produced that income and was also a private expense.

Similarly in your case, you were required to take out health insurance under the terms of your visa. It is acknowledged that taking out the health insurance was not strictly a personal choice as it is a requirement in order to enter Australia. This does not mean that the expense is necessarily deductible.

The expenses incurred for the health insurance have no direct connection to the gaining or producing of your assessable income. The purpose of the expense is to cover you in case of an illness while you are overseas. There is insufficient connection to the gaining or production of your assessable income for a deduction to be allowed as the expenditure is too remote. In addition, contributions for private health insurance can be characterised as being of a private nature.

Therefore, you are not entitled to a deduction for contributions for health insurance under section 8-1 of the ITAA 1997.