Edited version of your written advice

Authorisation Number: 1051508084430

Date of advice: 07 May 2019

Ruling

Subject: Medical expenses

Question 1

Are medical expenses and related travel, for work related injuries tax deductible?

Answer

No.

Question 2

Are you entitled to claim input tax credits on the above expenses?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2018

Year ending 30 June 2019

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are self-employed.

You have been injured on various occasions whilst working which has resulted in severe damage to parts of your body.

You were unable to continue working. You have been paid medical assistance through your policy from this date.

The medical expenses and travel you have incurred were for remedial surgery and treatment to your body that was damaged while undertaking your daily work routines.

You do not receive any compensation for the medical expenses you incurred from any source except partial refunds received from Medicare.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 section 38-7(1)

Reasons for decision

Question 1

Allowable deductions

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 or are necessarily incurred in carrying on a business for the purpose of 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, or a provision of the ITAA 1997 prevents it.

Taxation Ruling IT 2217 Income tax deductions: medical appliances, income tax deductions in respect of medical appliances and various case decisions in relation to medical expenses

Taxation Ruling IT 2217 provides at paragraphs 4 to 6:

In Hayley and Lunney v. FCT (1958) 100 CLR 478, the High Court held that the cost of travel to and from work was not an allowable income tax deduction. Similarly in Lodge v. F.C. of T. 72 ATC 4174, (1972) 3 ATR 254, the High Court held that child minding expenses were not an allowable income tax deduction. In both the cases the Court recognised that the expenditures were incurred for the purpose of earning assessable income and were an essential prerequisite to the derivation of that income. However, the expenditures were not incurred in the actual gaining of the assessable income and, for that reason, did not qualify for income tax deduction.

The same reasoning applies to expenses associated with the provision and maintenance of medical appliances. Claims for income tax deduction in respect of medical appliances have been considered by Taxation Boards of Review on a number of occasions. In Case P31 82 ATC 141; Case 96 25 CTBR (NS) 715, a quadriplegic law lecturer was not allowed an income tax deduction for depreciation, maintenance and insurance on a motorized wheelchair which he used 75% of the time in connection with his employment. Similarly, in Case Ql7 83 ATC 62; Case 82 26 CTBR(NS) 556, a farmer was denied the cost of a hearing aid which he claimed was an essential tool in carrying on his business.

In both cases the Board found that the sole purpose of the wheelchair or hearing aid was to aid the taxpayer in overcoming his personal disability in order that he could earn his assessable income. The Board concluded that, although the taxpayer might be unable to earn his assessable income without the aid of the relevant appliance, the outlay on the appliance was not incurred in gaining assessable income or carrying on a business for that purpose, but rather was incurred to help overcome an unfortunate disability suffered by the taxpayer.

The principles emerging from the various decisions apply to similar situations where taxpayers are required to use some type of medical device or surgical appliance to overcome a physical disability. Accordingly, claims for income tax deductions under sub-sections 51(1), 53(1) and 54(1) in respect of expenses incurred on medical appliances, e.g. wheelchairs, hearing aids, spectacles, artificial limbs and similar appliances used by persons in carrying out the duties of an employment are not allowable. These classes of expenditure would normally qualify as medical expenses for concessional expenditure rebate purposes.

Although your situation is not the same as the above, the principles are relevant. In your circumstances, the medical treatment was for your injury you sustained. Even though without this treatment you would not be able to carry out your daily duties, these expenses are not considered to be incurred in gaining your assessable income, but rather incurred in overcoming a medical condition. The expenses are not sufficiently connected to your income earning activities as a professional. The medical expenses (and associated travel) are private in nature and not an allowable deduction under section 8-1 of the ITAA 1997.

Question 2

Section 11-20 of the GST Act provides that you are entitled to an input tax credit (ITC) for any creditable acquisition you make.

The term ‘creditable acquisition’ is defined in section 11-5 and provides that you will make a ‘creditable acquisition’ if:

● you acquire anything for a ‘creditable purpose’ (either in full or in part);

● the supply of the thing to you is a taxable supply;

● you provide or are liable to provide consideration for the supply; and

● you are registered or required to be registered for GST.

Section 11-15 defines the term ‘creditable purpose’ providing that you will acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that:

● the acquisition relates to making input taxed supplies or

● the acquisition is of a private or domestic nature.

Consequently the medical expenses were not acquired for your business to make a creditable purpose; they do not relate to your business earning activities and are not a taxable supply. Hence, you will not satisfy the condition at paragraph 11-5(a) and (b) of the GST Act. Therefore, you are not entitled to claim input tax credits for the medical expenses you have incurred.

Further information

In accordance with section 9-5 of the GST Act, a supplier makes a taxable supply if:

● the supplier makes the supply for consideration

● the supply is made in the course or furtherance of an enterprise that the supplier carries on

● the supply is connected with the indirect tax zone (Australia), and

● the supplier is registered or required to be registered for GST.

However, a supply is not taxable to the extent that it is GST-free or input taxed.

GST-free – Medical services

Section 38-7 of the GST Act states a medical service is GST free. However, a supply of a medical service is not GST-free under section 38-7(1) if:

a) it is a supply of a professional service rendered in prescribed circumstances of regulation 14 of the Health Insurance Act 1973 or,

b) it is rendered for cosmetic reasons and is not a*professional service for where Medicare benefit is payable.

In your circumstances the medical services you have received is a GST-free supply they are not subject to 38-7(1) a) or b). Therefore, input tax credits cannot be claimed against GST free supplies and this is also a private expense.

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