Edited version of private ruling

Authorisation Number: 1011781108397

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Ruling

Subject: medical expenses

Question

Are you entitled to a deduction for your dental work?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

For your work you need to listen and talk for most of the day.

You had some dental work done on your teeth.

The full upper and full lower denture that was installed by your previous dentist was unstable and hindered your work as well as being an embarrassment. Your speech and function had deteriorated greatly as a result.

It was recommended that you should use implants instead of the denture on your lower teeth and remake your upper denture in order for you to function properly.

You incurred costs for this work.

Your dentist advises that the work is not cosmetic; rather it is functional.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

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.

A number of significant court decisions have established that, for an expense to satisfy the requirements of section 8-1 of the ITAA 1997:

§ it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income producing expense (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166)

§ there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236); and

§ it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces their assessable income (Charles Moore & Co Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 5570).

Generally medical expenses have no direct connection to the gaining or producing of assessable income and relate to a personal medical condition. 

The deductibility for expenditure on medical appliances is addressed in Taxation Ruling IT 2217. The ruling discusses two Taxation Board of Review decisions in relation to whether a medical appliance can be claimed as a work related expense. In Case P31; Gilbert v. Federal Commissioner of Taxation 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 medical appliance was to aid the taxpayer to overcome his personal disability so 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. The expenditure was incurred to help overcome an unfortunate disability suffered by the taxpayer.

In your case, you state that the dentures were unstable and hindered your speech as well as being an embarrassment. The dental work will assist you to talk better when you are working.

The reasons for your dental work are similar to those outlined in the Board of Review decisions referred to above. That is, the dental work has allowed you to overcome your teeth problems. As highlighted in paragraph 7 of IT 2217, claims for tax deductions in respect of expenses incurred on medical appliances used by persons in carrying out the duties of employment are not allowable.

Although your dental work may not be regarded as a medical appliance, the principles of IT 2217 are equally relevant in your case.

The expense of your dental work is not considered to be incurred in gaining assessable income. That is, any connection between the expenses and the gaining or production of your assessable income is too remote.

We acknowledge that the dentures hindered your speech and talking at work. However the fact you are better able to earn your assessable income because of the dental work, does not alter the essential character of the expense. That is, the medical expenses are private in nature. Furthermore, they are not sufficiently connected to your income earning activities. Consequently, the expenditure is not deductible under section 8-1 of the ITAA 1997.