Edited version of your written advice

Authorisation Number: 1051179832646

Date of advice: 20 January 2017

Ruling

Subject: Work related expenses

Are you entitled to claim a deduction for a portion of expenses incurred for accommodation, utilities and internet charges, supermarket food and restaurant meals while working overseas under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Are you entitled to claim a deduction for the total expense incurred for food and fuel while working overseas?

Answer

Yes

Question 3

Are you entitled to a Medicare levy and Medicare levy surcharge exemption whilst living and working overseas?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2016

The scheme commences on:

01 July 2015

Relevant facts and circumstances

You are an Associate Professor.

You travelled overseas to undertake research study

You are required to do research in your area of expertise as part of your job.

The travel was related to your research program.

You were paid your usual salary.

Your employer did not request you to travel overseas, but approved of your travel.

You continued to carry out some of your normal duties whilst you were overseas.

You spent your work days at the University or carrying out fieldwork

You were accompanied by your spouse and children for the entire period.

Your family did not contribute to your research activities.

Your children undertook distance education schoolwork.

You maintained your house during this time.

You have incurred the following expenses:

● Utilities and Internet Charges

● Supermarket food

● Restaurant food

● Rental Accommodation

● Food (while at work)

● Fuel (for work related travel)

You have receipts to substantiate your expenses.

A research fund paid for your specific visa, return flights and accommodation, car hire, fuel and food costs during your fieldtrips.

You took X days annual leave travelling with your family in the country of your work.

You have suspended your Australian private patient hospital insurance cover for the period you are overseas.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1936 Section 251S

Income Tax Assessment Act 1936 Section 251U

Medicare Levy Act 1986 Section 3(5)

Reasons for decision

Question 1 and 2

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, a deduction is not allowable for outgoings that are 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.'

A deduction is allowable for the costs incurred in undertaking work-related travel. Travel expenses include the costs of accommodation, fares, meals and incidentals.

Section 26-30 of the ITAA 1997 specifically denies deductions for expenses relating to relatives of a taxpayer where that relative has no direct involvement in the earning of the assessable income. To this end, none of the expenses relating to your family can be considered deductible

Apportionment

Where an expense is incurred for work and private purposes, the expense needs to be apportioned into deductible and non-deductible components. Apportionment can be determined using a reasonable method.

Apartment style accommodation, usually favoured by those travelling for a longer period, is that in which a set rate is charged per period regardless of the number of persons staying in the accommodation. For this type of accommodation, the Commissioner considers that the most appropriate apportionment is based on the actual use which the taxpayer had made of the apartment.

Application to your circumstances

In your case, you travelled overseas for work. You have incurred expenses in relation to accommodation, utilities and internet charges, supermarket food and restaurant meals during this period. We accept that portions of these expenses were incurred in relation to your work as an employee. However, as you were accompanied by your family, we consider that only the part of the expenses that relate directly to your travel would be deductible.

In your application for private ruling you stated you intended to claim X% of the utilities, interest, supermarket food and restaurant meals. We consider this to be fair and reasonable in the circumstances.

We do not accept that the total expense incurred for accommodation is deductible. This expense should also be apportioned based on the actual use that you had made of the house.

Further, we accept that the expense incurred for food while at work and the fuel for the car for your sole use would be fully deductable and no apportionment would be necessary.

Additional information

Division 900 of the ITAA 1997 sets out the substantiation requirements when claiming expenses. To be entitled to claim a deduction for your travel expenses in such situations, the expense must be actually incurred and you must have the appropriate written evidence and the necessary travel records.

Written evidence is outlined in section 900-115 of the ITAA 1997 and states that you must get a document from the supplier showing the name of the supplier, the amount of the expenses, the nature of the goods or services and the day the expense was incurred.

Question 2

Medicare levy

Medicare gives Australian residents access to health care. It is partly funded by taxpayers who pay a Medicare levy of 2% of their taxable income.

Section 251T of the ITAA 1936 provides for exemption from the levy to persons who qualify as prescribed persons. Prescribed persons are listed in subsection 251U(1) of the ITAA 1936 and include:

● members of the Defence forces and Veteran Affairs who are entitled to full free medical treatment

● residents of Norfolk Island or non-Australian residents

● blind pensioners or recipients of a sickness allowance from Centrelink

● diplomats and consular officials who are not citizens and not normally residents of Australia, and

● persons who hold a certificate from Medicare Australia showing they are not entitled to Medicare benefits.

These exemption categories do not apply to you. Therefore you are liable for the Medicare levy.

Medicare levy surcharge

If you don't have private hospital health insurance, you may have to pay the Medicare levy surcharge (MLS) in addition to the Medicare levy. This depends on your income for MLS purposes.

The MLS is imposed by the Medicare Levy Act 1986 (MLA). Section 8D of the MLA provides that a taxpayer will be liable to pay the MLS for any part of an income year where:

● during the whole of the year the taxpayer is married;

● the taxpayer, their spouse and all of their dependents are not covered by a health insurance policy that provides private patient hospital cover; and

● the taxpayer and their spouse's combined income for MLS purposes for the year exceeds $180,001.

The rate of MLS imposed depends upon your combined income as follows:

$180,001 - $210,000 1%

$210,001 - $280,000 1.25%

$280,001 and above 1.5%

Subsection 3(5) of the MLA states the following:

For the purposes of this Act, a person is covered by an insurance policy that provides private patient hospital cover if:

a) the policy is a complying health insurance policy (within the meaning of the Private Health Insurance Act 2007) that covers hospital treatment (within the meaning of that Act); and

b) any excess payable in respect of benefits under the policy is no more than:

i. $500 in any 12 month period, in relation to a policy under which only one person is insured; and

ii. $1,000 in any 12 month period, in relation to any other policy.

Your situation is similar to that of the taxpayer in Adam Fraser v. Commissioner of Taxation [2000] AATA 738. In that case Mr Fraser was a member of a Medical International. The Private Health Insurance Administration Council confirmed in this case that Medical International is not on the Register of Health Benefit Organisations.

The Australian Prudential Regulation Authority administers the Private Health Insurance Act 2007 and maintains on its website (apra.gov.au) an up to date record of all private health insurers providing complying policies.

Medibank travel/medical insurance is not on the Register of Health Benefit Organisations and it cannot issue complying health insurance policies. As you are not covered by a complying health insurance policy, when you and your spouse's combined income for MLS purposes is greater than the threshold, you will be liable for the MLS.

In the case of McCarthy v F C of T 2002 ATC 2004, the applicant applied for an exemption from the Medicare levy being imposed. It was determined that the Commissioner had no discretion to not impose the Medicare levy (or the Medicare levy surcharge) as there was no provision in the legislation to do so. Once a taxpayer's income has reached the Medicare levy surcharge threshold the surcharge must be imposed in accordance with the legislation.