Edited version of your private ruling

Authorisation Number: 1012539283248

Ruling

Subject: Medical and travel expenses

Question 1

Are you entitled to a deduction for the travel expenses incurred to go to your medical practitioner solely to obtain a medical report as required by the insurance company paying you the assessable income protection payments?

Answer

Yes.

Question 2

Are you entitled to a deduction for the postage costs incurred to send the medical report as required by the insurance company paying you the assessable income protection payments?

Answer

Yes.

Question 3

Are you entitled to a deduction for doctor's fees, travel and other expenses incurred to go to your medical practitioners for treatment?

Answer

No.

Question 4

Are you entitled to a deduction for your medication expenses incurred?

Answer

No.

Question 5

Are you entitled to a deduction for the phone and email expenses incurred in dealing with the insurance company paying you the assessable income protection payments?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You have been unable to work for several months and are receiving assessable income protection payments through an insurance policy.

A condition to receiving your income protection payments is that you obtain a monthly medical report.

You post the report to the insurance company.

You also incur costs for medication. It is mandatory to follow prescriptions to obtain the monthly income.

Sometimes when you visit the medical practitioner, the sole purpose is to obtain the report and you do not receive treatment. Other times you receive treatment and also receive the report.

You have travel expenses for travel to and from the medical practitioners.

You also use your phone and email to contact the insurance company.

Your medical practitioner has recommended you to enter into the public domain more instead of staying alone at home. Following the doctor's directions is a requirement of the insurance company.

Public transport is not an option in your circumstances and you have purchased a car for your travels. You have not kept a log book for your travel.

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.

Generally medical expenses have no direct connection to the gaining or producing of assessable income and a deduction is not allowable. Medical expenses are usually a prerequisite to the earning of assessable income and relate to a personal medical condition and are private in nature.

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 of 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 income protection payments, then arguably this is not private in nature and that travel would be deductible.

The requirement for the taxpayer to provide a medical certificate at regular intervals to the paying authority to ensure the continued receipt of workers compensation payments, is analogous to the activity test considered by the High Court in Federal Commissioner of Taxation v. Anstis (2010) 241 CLR 443; (2010) 2010 ATC 20-221; (2010) 76 ATR 735.

In your case, you are required to go to your medical practitioner to obtain a monthly medical report in order to continue getting your income protection payments. During some of these visits you do not receive medical treatment. The travel to the medical practitioner is a necessary part of obtaining the required medical report to maintain your entitlement to the income protection payments.

Where you undertake the travel solely to acquire a medical report from your medical practitioner, as required by the insurance company, (that is, no actual medical treatment is received) then the cost of that travel is considered to be deductible against the assessable income protection payments you receive.

Similarly postage expenses incurred for the sole purpose of sending the medical report are also an allowable deduction.

For other travel to your doctors when you receive treatment, no deduction is allowed. 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 travel expenses incurred to go to your medical practitioner for treatment. Similarly, the costs of travel into the public domain and the costs of medication are regarded as private in nature and not an allowable deduction.

In Commissioner of Taxation v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616 (Cooper), Hill J said:

...the fact that the employee is required, as a term of his employment, to incur a particular expenditure does not convert expenditure that is not incurred in the course of the income producing operations into a deductible outgoing.

The fact that you are required to take your medication and enter into the public domain does not change the private nature of these expenses.

A taxpayer does not satisfy section 8-1 of the ITAA 1997 merely by demonstrating some 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 "in the course of" gaining or producing the 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 [20001] HCA 3.

The cost of having a home phone and email is generally regarded as private in nature. The receipt of phone calls and emails do not incur any additional costs. Costs incurred in phoning or emailing the insurance company are incidental and not sufficiently connected to your assessable income. Such expenses are not incurred in gaining or producing your assessable income protection payments. Therefore no deduction is allowed.

Car expenses

Section 28-12 of the ITAA 1997 provides that a deduction for deductible car expenses can be made using one of four methods if you owned a car.

The four methods of calculating deductions are:

· 'cents per kilometre' method

· '12% of original value' method

· 'one-third of actual expenses' method, and

· 'log book' method.

You are only entitled to use the 12% of the original value method and the one-third of actual expenses method if your car has travelled more than 5,000 deductible kilometres in the income year.

To use the log book method, you need a logbook so you can work out the percentage of deductible travel. As you have not kept a log book, you are unable to use this method.

In your case, the cents per kilometre method is the most appropriate method. You calculate your deduction by multiplying the total number of deductible kilometres your car travelled in the income year by the number of cents based on your cars engine capacity. The number of business kilometres is limited to the first 5,000. Any deductible kilometres travelled in excess of 5,000 are disregarded. Under this method, you do not need receipts of your expenses. You only need to keep a record of your deductible kilometres travelled.

The rate set by the Commissioner in calculating your deduction for your car expenses takes into consideration the running costs of your car. Therefore when using this method, no additional deduction is allowed for the purchase or maintenance costs of your car.