1 Can you claim a deduction for your medical expenses?
No This ruling applies for the following period : Year ending 30 June 2024 The scheme commenced on: 1 July 2023
You have a medical condition. You require medical treatments that have associated costs. You are not employed. You do not carry on a business. Your only income is a total and permanent disability pension.
Income Tax Assessment 1997 section 8-1
Subsection 8-1(1) of the ITAA 1997 allows you to deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income; or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. Subsection 8-1(2) of the ITAA 1997 states that a loss or outgoing cannot be deducted if it is capital or is capital in nature; or private or domestic in nature; or it is incurred in gaining or producing exempt income or non-assessable non-exempt income. 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.'
An expense must have a sufficient connection with the operations or activities which more directly gain or produce the taxpayer's assessable income and not be of a capital, private or domestic nature. The test is one of characterisation and the essential character of an expense is a question of fact to be determined by reference to all the circumstances. It is not sufficient that the expenses be incurred for the purpose of producing the assessable income; they must be incurred in gaining or producing the assessable income. Fletcher v Federal Commissioner of Taxation 91 ATC 4950; (1991) 173 CLR 1, noting a reference to section 51(1) of the Income Tax Assessment Act 1936 (ITAA 1936) is equivalent to the current provision section 8-1 of the ITAA 1997, provides:
'The question whether an outgoing was, for the purposes of s 51(1), wholly or partly 'incurred in gaining or producing the assessable income' is a question of characterization. The relationship between the outgoing and the assessable income must be such as to impart to the outgoing the character of an outgoing of the relevant kind. It has been pointed out on many occasions in the cases that an outgoing will not properly be characterized as having been incurred in gaining or producing assessable income unless it was 'incidental and relevant to that end'. It has also been said that the test of deductibility under the first limb of s 51(1) is that 'it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income'.' Generally medical expenses have no direct connection to the gaining or producing of assessable income. The expenses relate to a personal medical condition, not to the earning of income, and are private in nature. In Case Q17
83 ATC 62, a farmer was denied the cost of a hearing aid which he claimed was an essential tool in carrying on his business. The Board found that the sole purpose of the 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. Furthermore, the outlay was private in nature. In Case U83 87 ATC 481 the taxpayer was a musician whose principal instrument was the trombone. The taxpayer had a tooth removed. While teaching music at school he noticed that the mouthpieces of the brass instruments that he played were starting to drift across. They were following the line of lower teeth, which had been drifting across to fill the gap created by the loss of the decayed tooth. It was found that the orthodontist expenses were of a private nature and not deductible. It was said (at 484):
'The expenses involved are no different in their essential nature from the cost of spectacles for a musician with defective eyesight who has difficulty in reading music. They are no different from the expenses of an airline pilot attending keep fit classes. They are no different from the expenses of a spinal laminectomy in the case of a labourer for whom a strong back is essential in earning a living. All these types of expenditure may well have a beneficial effect on the taxpayer's income earning capacity. Indeed it is possible to visualise cases where the expenditure is necessary for that purpose. The authorities, nevertheless, compel me to treat the essential nature of those expenses and of the expenses of the present applicant as private.'
In your case, you are not employed, nor do you carry on a business for the purpose of gaining or producing your assessable income. Your only income is a total and permanent disability pension. There is no connection between the medical expenses to the gaining or production of your assessable income, even if the reason for needing the medical expenses and the reason which you were assessed as being totally and permanently disabled to be able to receive the total and permanent disability pension are the same. Furthermore, expenses relating to treatment of a medical condition, or medical appliances or devices are purely of a private or domestic nature and are specifically excluded from being deductible. You therefore cannot claim a deduction for the medical expenses under section 8-1 of the ITAA 1997.