Edited version of your private ruling

Authorisation Number: 1012376863780

Ruling

Subject: Decline in value of artificial limb

Question

Is a deduction allowable for the decline in value of your artificial limb?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are employed.

You are mobility impaired due to an injury. As a result, you have found that you are limited in movement and have been unable to perform tasks at work such as moving between rooms and carrying files.

You have decided to purchase an artificial limb to assist your movement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 40-25

Reasons for decision

Summary

The need for the expenditure on your artificial limb arose from your personal disability and therefore is an outlay of a private nature. As such, a deduction for the decline in value of your artificial limb is not allowable under section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Deductions

Section 8-1 of the ITAA 1997 deals with general deductions. The section allows a deduction for a loss or outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature.

However there are also provisions in the income tax law which deal with specific deductions. Division 40 of the ITAA 1997 is one of these provisions. It deals with the deductibility of capital expenditure, including expenditure on certain assets (called depreciating assets).

Deducting amounts for depreciating assets

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used.

Division 40 allows a person to deduct the cost of a depreciating asset, and to spread the deduction over a period that reflects the time for which the asset can be used.

Section 40-25 of the ITAA 1997 allows a person to deduct from their assessable income an amount equal to the decline in value for an income year of a depreciating asset to the extent that it is used for the purpose of producing assessable income. A person cannot deduct the part of the asset's decline in value that is attributable to their use of the asset for private purposes.

Deductions for medical appliances

Taxation Ruling IT 2217 deals with the question of whether taxpayers suffering from physical disabilities are entitled to income tax deductions for expenditure on medical appliances (for example, wheelchairs, hearing aids and such) used by them in the course of gaining or producing assessable income (for example, in carrying out the duties of an employment).

IT 2217 states that whether a claim for deduction is made under the general deductions provision, as losses or outgoings incurred in gaining or producing assessable income, or under the specific deductions provisions, as repairs to or decline in value of property used for the purpose of gaining or producing assessable income, the test for income tax deduction is essentially the same. That is, the need to use the particular medical appliance must be brought about by the duties of employment. In other words, there must be something in the duties of employment which specifically requires the use of the medical appliance.

In Hayley and Lunney v. FCT (1958) 100 CLR 478 and Lodge v. F.C. of T. 72 ATC 4174, (1972) 3 ATR 254, the High Court held that the cost of travel to and from work and child minding expenses respectively were not allowable deductions. 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.

IT 2217 states that the same reasoning used by the High Court in the above two cases applies to expenses associated with the provision and maintenance of medical appliances.

Claims for deductions 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 motorised wheelchair which he used 75% of the time in connection with his employment. Similarly, in Case Q17 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. His hearing was so bad that the shearers refused to work unless he wore the hearing aid so that they could communicate with him. He also had a need to communicate with stock agents.

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 primary cause of the expenditure was the correction of a disadvantage personal to him. It was held that 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 a personal disability suffered by the taxpayer.

IT 2217 states that the principles emerging from the various decisions apply to similar situations where taxpayers are required to use some type of medical appliance to overcome a physical disability. The Ruling states that accordingly, claims for tax deductions (whether under the general deductions provision or specific deductions provisions for repairs and decline in value) in respect of expenses incurred on medical appliances, for example, wheelchairs, hearing aids, spectacles, artificial limbs and similar appliances used by persons in carrying out the duties of an employment are not allowable.

Your case

We acknowledge that the artificial limb is an aid to overcoming your mobility impairment and will help you in performing the tasks of your employment. However, although you might not be able to earn your assessable income as effectively without the artificial limb, your outlay on the artificial limb is a prerequisite to the derivation of your income. The expenditure is not incurred in the actual gaining of your assessable income. The primary cause of the expenditure is the correction of a disadvantage personal to you. The need for the expenditure on your artificial limb arose from your personal disability and therefore is an outlay of a private nature. As such, a deduction for the decline in value of your artificial limb is not allowable under section 40-25 of the ITAA 1997.

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