Every year, doctors and medical professionals incur a significant amount of expenses for work or business purposes. Some of these expenses can easily be overlooked or forgotten. To assist with this, we have summarised a recent case and provided a list of the top 5 most commonly forgotten tax deductions for doctors.
Mfula and Commissioner of Taxation (Taxation)  AATA 3067 (30 August 2021)
This recent case looked at travel deductions claimed by Mr. Mfula in the 2016 financial year. Mr. Mfula worked as a medical doctor in Victoria and New South Wales during the period under review. He provided his services as an employee of various NSW Health Service Local Health Districts (LHDs) and worked at 5 different hospitals in NSW. His locum placement was arranged through a medical locum agency. Additionally, he worked as an assistant surgeon (sole trader) in Victoria, where he resides with his family.
In his income tax return, he claimed deductions for car-related expenses, travel expenses, and meal costs. Initially, these deductions were denied by the Commissioner of Taxation and then upheld by the AAT.
Mr. Mfula stated that he used his car to travel from home to the surgery, from the surgery to another workplace, or to the airport for locum jobs in NSW. He argued that his home is his primary place of business, where he performed administrative duties for his employment and his sole trader business.
The Commissioner of Taxation disputed that the travel undertaken was not for work purposes but rather to work or conduct business, and therefore considered private in nature.
The AAT found that Mr. Mfula’s duties did not begin until he arrived at the relevant surgery or hospitals, and the travel between these locations was not considered work time as they involved different employers. The AAT also determined that performing administrative duties alone was not sufficient to demonstrate that he ran his business from home, leading to the denial of the deduction. The AAT suggested that Mr. Mfula would need to provide evidence of other activities, such as seeing patients or performing surgical duties from home, which may be challenging for an assistant surgeon.
Unfortunately, Mr. Mfula was unable to provide adequate documentation to support his claim under the cents per kilometer method because he only estimated the number of kilometers traveled on the days he was away and the days he used the car.
His flights and accommodation costs are paid for by the Medical Locum Agency and therefore no other travel expenses were required to be considered.
Part of Mr. Mfula’s hourly rate or wages, which were negotiated with each NSW Health Service LHD, includes a meal allowance. However, this allowance is not separately identified.
In his tax return, Mr. Mfula claimed a deduction for meal and incidental costs incurred while he was away from his home in Victoria at the 5 NSW hospitals. He claimed up to the reasonable meal allowance as determined by the ATO in the relevant year. He was away for 247 days during the year and has a travel diary to support the days he was away.
Generally, food and drink expenses are considered private in nature and not deductible unless they have a close connection to the performance of employment duties.
The deduction for meal and incidental expenses was denied because Mr. Mfula was employed by various LHDs and was not traveling away from his home overnight for work purposes.
The expenses he incurred for food and drink were a result of his personal circumstances, specifically living far away from his place of employment. Therefore, they are considered private in nature and not deductible.
Additionally, the Commissioner emphasised that the reasonable amounts published by the ATO are not automatic deductions. Substantiation is still required and the exception for this may be applied if he was to have received a specific travel allowance to cover those expenses.
When are these deductions allowable?
Locum doctors can claim car expenses when travelling between two separate workplaces. Additionally, a deduction is allowed if you travel from your regular workplace to an alternative workplace. Both of the above assume the workplace is not your home. Generally, it is very difficult as a doctor to argue that your home is your primary place of business.
The tax law views the trip from home to work as a private expense and is therefore not deductible, as this occurs before you start earning assessable income. If you are travelling for a personal reason in conjunction with your work, you may only claim a deduction on the work portion of your travel.
To claim accommodation expenses the following conditions must be met:
- The location of your permanent home must be significantly away from your workplace;
- The expenses cannot be incurred as a result of you choosing to reside in a location that is different from your work location;
- You must be away for only short stints of time; and
- Your employment duties must require you to be at that specific location.
Top 5 most commonly forgotten tax deductions for doctors
1. Self Education Expenses
Deduction for self-education will be allowable if the study maintains or improves a skill or specific knowledge required in current employment or business activities (e.g. CPD courses), or is likely to result in an increase in income from your current employment or business activities (e.g. fellowship or a specialist accreditation course).
Examples of self-education expenses for doctors include:
- Course/Exam fee, conferences and seminar fees, textbooks, professional library subscriptions
- Travel, overnight accommodation and meals, parking costs
- Phone, internet and other running expenses associated with study
- Cost of equipment to the extent used for study purposes (must be depreciated if over $300)
2. Medical Indemnity Insurance
All practising medical practitioners must be insured or otherwise indemnified for their scope of practice. Having an appropriate level of medical indemnity Insurance is also a requirement for maintaining registration with AHPRA.
Medical indemnity insurance premiums can be paid monthly or annually. Your medical indemnity insurance is tax deductible in the year it is paid.
3. Income Protection Insurance
You can claim the cost of premiums you pay for income protection insurance during financial year as a tax deduction. The premiums are tax deductible where the cover is designed to replace your income in case you are unable to work in case of an accident, illness or major trauma.
You can claim deduction for cost of equipment to the extent it is used for work or business related purposes.
Common examples of work-related equipment purchased by doctors include:
- Smartphone, laptops, tablets and other electronic devices
- Medical equipment (e.g. stethoscope, ultrasound machines, ECG machines)
- Purchase of software licences for electronic devices and medical equipment
- Protective items and safety equipment
- Work bags, briefcases, laptop bags
For employed medical professionals, purchases of items costing $300 or over must be depreciated over their effective life period. Items costing less than $300 are tax deductible immediately.
5. Clothing and laundry expenses (including footwear)
You can claim the cost to buy, hire, repair or clean clothing if it is:
- protective – clothing which has protective features or functions that you wear to protect you from specific risks of injury or illness at work. For example, lab coats or surgical caps a compulsory uniform – you are explicitly required to wear it by a workplace agreement or policy, which is strictly and consistently enforced, and is sufficiently distinctive to your organisation.
Although none of these concepts or principles are new, this case has shown how the Commissioner of Taxation and AAT can take a very narrow and strict view of what is deductible expenditure for locum doctors.
You can reach out to us for more information on the above at any time.