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Ruling

Subject: psychotherapy fees

Question

Are you entitled to a deduction for the cost of personal psychotherapy sessions?

Answer: No

This ruling applies for the following period

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You are a practising psychotherapist.

You are undertaking a course related to your employment.

It is a requirement of the course that you undertake individual therapy. This minimum requirement is to be completed by the commencement of year three of your course.

There are no criteria about what the sessions should contain and hours can be counted from the year before enrolling in the course.

The therapy is required so that the student's personal work can be supported outside the group process.

You are undertaking the course to extend your professional knowledge.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

A deduction is allowed under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred in gaining or producing your assessable income provided the expenditure is not capital, private or domestic in nature.

As a requirement of your graduate diploma you are studying you undertake psychotherapy treatment. Whilst we accept that the cost of the Graduate diploma for Gestalt Therapy may be a legitimate self education expense and sufficiently related to the earning of assessable income, the costs of the psychotherapy treatment must be reviewed on their own merits. This is because the therapy is separate to the course in that it is could have been conducted prior to commencement of your training and can be carried out by a psychologist of your choosing. Rather than a component of the course it is a prerequisite to participating in the third year of your studies.

For the therapy expenses to be an allowable work related deduction they must satisfy the two parts of section 8-1 of the ITAA 1997: connection to assessable income and, not private in nature.

Connection to assessable income

A deduction is allowable where there is a sufficient nexus between the expense and the gaining of assessable income, where the expense incurred increases your knowledge, skill or ability and better enables you to carry out your duties.

Generally medical expenses, including psychotherapy, have no direct connection to the gaining or producing of assessable income as the purpose of the expense is to assist with a taxpayer's health and mental wellbeing and are considered inherently private in nature: Rossitto & Federal Commissioner of Taxation , Re; AAT Case 12 ,821 (1998) 39 ATR 1019; 98 ATC 2093. It is considered that an insufficient connection exists to the gaining or production of assessable income for a deduction to be allowed as the expenditure is too remote.

In FC of T v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616 (Cooper's case) a professional footballer was denied the cost of purchasing food and drink even though his coach had instructed him to consume additional food. The character of the expense was private.

In Cooper's case, Hill J said:

...the fact that the employee is required, as a term of his employment, to incur a particular expenditure does not convert expenditure that is not incurred in the course of the income- producing operations into a deductible outgoing.'

In your case whilst we acknowledge that it was a requirement of your course that you undertake psychotherapy, the expenses are not considered to be incurred in gaining assessable income. Rather, the expenses are medical expenses incurred to assist with your health and wellbeing.

In your case, although it can be argued that there is a employment related link to the work carried out by a psychologist and the need for psychotherapy, it is unclear to what extent the sessions contribute to your ability to do your job or improve your skills in relation to your employment or the furtherance of your Gestalt studies as there is no criteria as to what the sessions must contain. The therapeutic nature of psychotherapy remains the same regardless of profession of the individual participating in it. Furthermore no information is required by the course about the content or process of the therapy.

Private in nature

Regardless of what outcome was achieved in relation to the first part of the test for deductibility, it is considered that the expenditure would be inherently private in nature and therefore fail the second part of the test. Should the above conclusion be incorrect and the expenditure was sufficiently connected to the derivation of your income, it is considered that the treatment undertaken was therapeutic, essentially private in nature and would again fail to be deductible.

Conclusion 

There is not a sufficient nexus between the earning of your assessable income and the psychotherapy you receive. While it is acknowledged that the treatment is required as part of a self education course and may help you deal with your daily duties of working, it is not considered to be sufficiently connected with the knowledge, skill or ability required to do your job. It is considered that the treatment was of a personal nature and the expenses incurred are therefore private and not deductible under section 8-1 of the ITAA 1997.