Deductions for medical expenses

Can the taxpayer claim a deduction for medical expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. Medical expenses are not incurred in gaining or producing assessable income and are therefore not allowable deductions under section 8-1 of the ITAA 1997.

The taxpayer has a chronic illness and is under the treatment of specialist doctors.

The taxpayer has incurred expenses in relation to the treatment of their illness.

Section 8-1 of the 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, or relate to the earning of exempt income.

The courts have considered the meaning of 'incurred in gaining or producing 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 assessable it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.'

Medical expenses have no direct connection to the gaining or producing of assessable income. The purpose of the expense is to return the taxpayer to health. There is insufficient connection to the gaining or production of assessable income for a deduction to be allowed as the expenditure is too remote.

In addition, medical expenses can be characterised as being of a private nature and therefore can also be excluded on that ground.

The taxpayer cannot therefore claim a deduction for the medical expenses incurred in the treatment of their illness under section 8-1 of the ITAA 1997. Note: section 159P of the ITAA 1936 allows a tax offset in respect of certain defined medical expenses.