Edited version of your private ruling

Authorisation Number: 1012418612212

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Ruling

Subject: Self education and medical expenses

Question 1

Are you entitled to a deduction for your self education expenses?

Answer

No.

Question 2

Are you entitled to a deduction for travel expenses incurred to go to your medical practitioner solely to obtain a medical report and/or certificate as required by Workers' Compensation?

Answer

Yes.

Question 3

Are you entitled to a deduction for your other health and fitness expenses?

Answer

No.

Question 4

Are you entitled to include the cost of travelling to and from your medical appointments for treatment in calculating your medical expenses tax offset?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are currently receiving compensation payments and have not worked for a few years.

You declare your income as assessable income on your tax return.

You need to be reassessed every 12 months and have been granted with a certificate 'unfit for work'.

You have done some courses including an Occupational Health and Safety course. You do the courses to keep your skills to that of a standard to be re-employed.

You have incurred costs on books, stationery items, ink, laptop, computer items, teaching aids, Microsoft programs including Word 2010, Power point and Office 2010 and internet.

You also incur costs to assist in your health. You use your phone for making medical appointments. You use your car to travel to appointments. You have also incurred expenses on gym equipment and clothing for your medical appointments and physio requirements.

You have receipts for your expenses.

You do not receive superannuation or any other employment income or benefits.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Self education expenses

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings 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 deductibility of self education expenses falls for consideration under section 8-1 of the ITAA 1997. Therefore, in considering whether you are entitled to a deduction for your courses and other related expenses, it is necessary to consider whether the expenses were incurred in the course of gaining or producing your assessable income.

Taxation Ruling TR 98/9 discusses the circumstances under which self education expenses are allowable as a deduction. A deduction is allowable for self education expenses if a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

Similarly, if the study of a subject of self education objectively leads to, or is likely to lead to an increase in a taxpayer's income from his or her current income earning activities in the future, a deduction is allowable.

However, no deduction is allowable for self education expenses if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

To determine whether your self education expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

Self-education courses are generally undertaken to further yourself in a position that you already hold.

In your case you did a course while receiving compensation income. The course is to help you keep your previous employment skills and to keep you up dated to help you in your future employment.

The cost of the course was incurred for the purpose of getting employment in the future. That is, you were not currently employed when you did the course. The skills gained in doing the course does not have a sufficient connection to your previous employment and can not be said to help with your current income earning activities.

It is acknowledged that you are currently receiving compensation or income replacement payments, however, the course expenses can not be said to have a direct impact on this assessable income. It is more related to your future employment income. Such expenses are incurred at a point too soon to be regarded as incurred in gaining or producing your assessable income and are not deductible under section 8-1 of the ITAA 1997. 

Therefore your expenses incurred for stationary items, ink, courses, teaching aids, computer items, laptop, Microsoft programs and other self education expense are not an allowable deduction.

We also acknowledge that you do not receive superannuation or any other employment benefits. However, this reduction in income and benefits do not give rise to any allowable deduction.

Travel to obtain medical certificate

A number of significant court decisions have determined that, for an expense to satisfy the tests in section 8-1 of the ITAA 1997, it must have the essential character of an outgoing incurred in gaining assessable income (Lunney v. FC of T, Hayley v. FC of T (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166) and 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; (1949) 8 ATD 431; (1949) 4 AITR 236).

In Commissioner of Taxation v. Anstis (2010) 241 CLR 443; (2010) 2010 ATC 20-221; (2010) 76 ATR 735 (Anstis), the Court considered the deductibility of expenses incurred by the taxpayer in undertaking her study which was a requirement to her receiving the Youth Allowance. It was found that the reason for the taxpayer incurring the expenses was not determinative of the question whether they were incurred in gaining or producing the youth allowance. The occasion of her study expenses was to be found in what she did to establish and retain her statutory entitlement to the receipts.

Your case can be likened to the Anstis case, in that you are required to be medically assessed each year to continue to be eligible to receive your assessable income. As such, it can be said that the expenses for the doctor are expenses incurred to establish and retain your workers' compensation payments.

Travel undertaken to receive medical treatment for a work-related injury was discussed in Rossitto v. FC of T 98 ATC 2093 (Rossitto). In this case, the taxpayer severely damaged his knee in a work-related injury and liability was accepted for compensation. The taxpayer argued that the cost of regular travel by motor vehicle to his doctor, physiotherapy treatment and specialist doctors was necessarily incurred in deriving the compensation income. He further argued that the payment of compensation was conditional on the maintenance of a rehabilitation program.

However, the claim for travel costs failed as they did not have the required nexus with the derivation of assessable income and were found to be of a private or domestic nature. It was difficult to separate the private and personal nature of medical treatment and its relationship with the derivation of income. The case concluded 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.

The difficulty of separating the private nature of receiving medical treatment from the relationship attending the medical practitioner has to the derivation of assessable income is arguably not present if the visit does not involve the receipt of any actual treatment. Should the purpose of the trip be solely to allow a certificate to be issued or a report obtained, as required by the payer of your workers' compensation benefits, then arguably this is not private in nature and that travel would be deductible.

In your case, you are required to go to your medical practitioner and physio for treatment. As highlighted in the Rossitto case, the cost of travel to receive medical treatment is considered private in nature and not deductible. Accordingly, you are not entitled to a deduction for any of the travel expenses that you have incurred to go to your medical practitioner for treatment.

However, if you undertake travel solely to acquire a certificate and/or report from your medical practitioner, as required by workers' compensation, (that is, no actual medical treatment is received) then the cost of that travel is considered to be deductible against the assessable benefits you receive.

Medical expenses

Medical expenses are generally regarded as private expenses. Additionally it is a long standing principle that a taxpayer does not satisfy section 8-1 of the ITAA 1997 merely by demonstrating some 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.

A person is entitled to deduct work related expenses for costs that directly relate to their work as an employee. The Commissioner generally takes the view that expenses incurred in keeping fit are inherently private in nature as it ultimately involves the person's own physical wellbeing.

Taxation Ruling TR 95/17 discusses the deductibility of fitness related expenses for Australian Defence Force (ADF) members. TR 95/17 states that a deduction is not allowable for fitness expenses in maintaining a general standard of fitness expected of an ADF member as such expenses are generally private in nature.

In your case, we acknowledge that you need to keep fit. Whilst gym equipment and other medical expenses may benefit you and help you keep fit, this does not in itself mean that the expenditure was incurred in gaining or producing assessable income.

It is accepted that you were required to travel for your medical appointments while receiving compensation. However, the travel expenditure incurred in travelling to and from medical appointments for treatment are not incidental to the earning of your assessable income, but rather these expenses are of a private nature.

That is, the expenses incurred in relation to your health do not have the required nexus with the derivation of assessable income and are of a private nature. Therefore, the associated expenses such as phone costs, travel, equipment and clothing are not an allowable deduction under section 8-1 of the ITAA 1997.

Medical expenses tax offset

Section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) provides for a tax offset to a taxpayer whose net medical expenses in the year of income exceed $2,060.

Subsection 159P(4) of the ITAA 1936 specifically defines medical expenses which are eligible for the medical expenses tax offset. The definition does not include the costs of travel or accommodation to obtain medical treatment. This was confirmed by the decision of the Administrative Appeals Tribunal in Case R12 84 ATC 165; 27 CTBR (NS) Case 63. In that case, travelling expenses whilst necessary in order to receive medical treatment, were held not to be a payment for the medical treatment.

Accordingly, travel expenses incurred for medical examinations are not medical expenses as defined in subsection 159P(4) of the ITAA 1936. Similarly the phone costs, equipment and clothing are also not regarded as medical expenses.

Therefore you are not entitled to include the expenses in the calculation for a claim for medical expenses tax offset.