Edited version of your written advice

Authorisation Number: 1051422704617

Date of advice: 11 October 2018

Ruling

Subject: Eye surgery expenses

Question 1

Are you entitled to a deduction for the cost of your eye operation under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are you entitled to a deduction for the decline in value for your artificial lens under Division 40 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a professional.

You are required to read material, correspondence and documents for your work.

You regularly work several hours daily.

You previously had laser eye surgery.

You do not need to wear glasses and haven’t worn glasses for many years.

One of your eyes is short-sighted and the other long sighted.

You experience blurry vision and minor headaches from reading for lengthy periods.

An eye surgeon advised that your brain tires after reading for several hours.

The eye surgeon indicated that eye surgery will alleviate the problem.

The operation involves surgery to the eyes, insertion of an artificial lens and laser surgery.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1936 Division 40.

Reasons for decision

Allowable deductions

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.

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.’

The expenditure must therefore be related to the production of assessable income.

Generally medical expenses have no direct connection to the gaining or producing of assessable income. The expense relates to a personal medical condition and is private in nature. There is insufficient connection to the gaining or production of assessable income for a deduction to be allowed. Medical expenses are usually a prerequisite to the earning of assessable income.

Taxation Ruling IT 2217 Income tax deductions: medical appliances, discusses income tax deductions in respect of medical appliances and various case decisions in relation to medical expenses. 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.

Although your circumstances are not the same as those above, the principles are relevant. In your case you intend to incur expenses for surgery. Your eye surgeon indicated that an eye operation will alleviate visual blurriness and headaches. It is acknowledged that an eye operation which improves eye sight helps you carry out income earning activities, however, the expense is not considered to be incurred in gaining the assessable income, but rather incurred in overcoming a medical condition. The expense is not sufficiently connected to your income earning activities as a professional. The expense is private in nature and is not an allowable deduction. Therefore, no deduction is allowed for the cost of your eye operation under section 8-1 of the ITAA 1997.

Depreciation

Section 40-25 of the ITAA 1997 allows a deduction for the decline in value of depreciating assets to the extent that they are not held for private purposes.

The Commissioner has ruled that a depreciation deduction is not allowed for the cost of medical appliances such as spectacles or artificial limbs used by them in carrying out the duties of their employment because they are items of a private nature. Even in situations where a taxpayer can not do their job without the relevant aid, a depreciation deduction is not allowed (IT 2217).

This view is supported by (1952) 3 TBRD Case C20 where it was held that a car which was used for travelling between his home and place of employment because he had a physical disability was held not to be used for the purpose of producing assessable income but to be private in nature. Similarly, in Case P31, 82 ATC 141, a law lecturer's claim for depreciation on a motorised wheelchair was rejected because the sole purpose of the wheelchair was to aid the taxpayer, a quadriplegic, in overcoming a personal disability.

Given the broad definition of “asset”, it is arguable that the human body is an asset for the purposes of section 40-30 of the ITAA 1997. In Norman v Golder [1945] 1 All ER 352 (UK case) the taxpayer was a shorthand writer who earned income by recording proceedings in the United Kingdom High Court of Justice. The taxpayer sought a deduction for medical expenses that, the taxpayer argued, were necessary for the taxpayer to be in a position to continue this income earning activity. In the Court of Appeal, Lord Greene MR held that a person's body was not plant or machinery.

There seems to be no reason to expect any other conclusion to be drawn by an Australian court or tribunal, and this approach is arguably consistent with the words of Menzies J in FCT v Hatchett (1971) 125 CLR 494; 2 ATR 557; 71 ATC 4184 who rejected the view that the human body, mind or capacity was an asset for which capital allowances might be allowed, as the human body is not “capital”.

Even if the human body is considered to be an “asset” for the purposes of section 40-30 of the ITAA 1997, there are several seemingly insurmountable barriers that prevent a deduction being allowed under subsection 40-25(1) of the ITAA 1997. The most significant is that a depreciating asset must be “held” - this suggests that the asset must be one that is external to the taxpayer, rather than being the taxpayer itself. Even in the case of the most demanding employer, it cannot be said that the employee is held by the employer.

In your case, your artificial lens is not regarded as a depreciating asset. Therefore no deduction is allowed under Division 40 of the ITAA 1997 for the cost of your artificial lens or associated surgery.