Edited version of private advice

Authorisation Number: 1051666539487

Date of advice: 29 April 2020

Ruling

Subject: Other work-related expenses - dental expenses

Question

Can you claim an income tax deduction for dental medical expenses incurred in the 20XX and 20XX income tax years?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a media presenter with extensive experience.

Your ability to speak with clear phonetics is crucial to your capacity to earn income in your profession. It would not be possible to do your work without having incurred the dental expenses.

You provided the following statement from your Periodontist:

"XXX has been attempting to maintain his dentition,"... the work..." will facilitate the return of function as well as allowing him to continue to work in his current field.

You also noted that you are employed in the same industry, where clear speech is a requirement of the profession, as was presented in Case Z42 92 ATC 381. The applicant was allowed speech therapy as a work related deduction for his work in advertising; including interviewing people and recording television programs. In this case, the Commissioner relied upon Case N64, 81 ATC 334 where it states that the cost was incurred in maintaining or increasing the applicants ability in his profession, and accordingly was necessarily incurred in carrying on his profession or calling (FC of T v Finn (1961) 12 ATD 348 at 352; (1961) 106 CLR 60 at 70.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

You are not entitled to any deductions in relation to your dental work as the associated expenses do not have a sufficient nexus to your assessable income as a media presenter. Furthermore, the expenses are inherently private in nature.

Detailed reasoning

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 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.At paragraph 3, the ruling refers to a case from the United Kingdom, Norman v. Golder, which is followed in Australia:

It is quite impossible to argue that a doctor's bills represent money wholly and exclusively laid out for the purposes of the trade, profession, employment or vocation of the patient. True it is that if you do not get yourself well and so incur expenses to doctors you cannot carry on your trade or profession, and if you do not carry on your trade or profession you will not earn an income, and if you do not earn an income the Revenue will not get any tax. The same thing applies to the food you eat and the clothes you wear. But expenses of that kind are not wholly and exclusively laid out for the purposes of the trade, profession or vocation. They are laid out in part for the advantage and benefit of the taxpayer as a living human being. Para (b) of the rule equally would exclude doctor's bills, because they are in my opinion, expenses of maintenance of the party, his family or a sum expended for a domestic or private purpose, distinct from the purpose of the trade or profession.

The ruling also cites 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 your dentition hindered your ability to speak with clear phonetics which is crucial to your capacity to earn income as a media presenter.

The reasons for your dental work are similar to those outlined in the Board of Review decisions referred to above. That is, the dental procedures have allowed you to overcome your dental 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 as a media presenter is too remote.

We acknowledge that your lower dentition hindered your ability to speak with clear phonetics which is crucial in your profession. 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. Your condition needed to be rectified and the dental work would have been carried out irrespective of whether you were a media presenter or otherwise.

Furthermore, the expenses are not sufficiently connected to your income earning activities as a media presenter. Consequently, the expenditure is not deductible under section 8-1 of the ITAA 1997.

Cited Case Law

In your ruling request you cited case Z42 92 ATC 381 in which the applicant was allowed speech therapy as a deduction for his work in advertising which included interviewing people and recording television programs. You advised that in this case the commissioner relied upon Case N64, 81 ATC 334 where it states that the cost was incurred in maintaining or increasing the applicants ability in his profession and accordingly was necessarily incurred in carrying on his profession or calling (FC of T v Finn (1961) 12 ATD 348 at 352; (1961) 106 CLR 60 at 70.

In this case, a deduction for work related self-education expenses was allowed for expenses relating to a speech course. This can be distinguished from the facts in your case because the dental expenses were of a medical nature.