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Edited version of your written advice
Authorisation Number: 1012697531587
Ruling
Subject: Medical testing expenses
Question
Are you entitled to a deduction for medical testing expenses?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You were off work due to illness.
A condition of being able to return to work and maintain your professional registration, you are required to undergo ongoing medical testing.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income. You cannot claim a deduction if the loss or outgoing is of a capital, private or domestic nature.
The courts have considered the meaning of 'incurred in gaining or producing the 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 the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing assessable income" mean in the course of gaining or producing such income.'
The expenditure must therefore be related to the production of assessable income.
Expenses may be of a revenue nature and therefore deductible if they arise out of the day to day activities of the taxpayer's income producing activity (Herald and Weekly Times Ltd v. Federal Commissioner of Taxation (1932) 48 CLR 113; (1932) 2 ATD 169). Where however, expenditure is devoted towards a structural rather than an operational purpose, the expenditure is of a capital nature and the expenses are not deductible.
The courts have held, in the absence of special circumstances that expenditure is capital in nature where it is made with a view to bringing into existence an asset or an advantage (tangible or intangible) of enduring benefit (British Insulated & Helsby Cables v. Atherton (1926) AC 205). Expenditure is also capital in nature where the action is undertaken to protect a capital asset (Pye v. FC of T (1959) 12 ATD 118).
In your case, you are required to undertake testing to enable you to maintain your professional registration. The expense is not incurred in actually performing your duties. Rather, your registration is considered to be a capital asset. Therefore, the cost of testing to protect this capital asset is also capital. Consequently, you are not entitled to a deduction for the cost of testing.