Edited version of private advice

Authorisation Number: 1052035118220

Date of advice: 16 September 2022

Ruling

Subject: Deductions - medical expenses

Question

Are the medical expenses you incur due to your XXXX XXXX an allowable deduction?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You have been diagnosed with an XXXX.

A number of factors contributed to your XXXX.

You have been under the care of a medical professional for several years.

You were prescribed medication for your condition.

You retired from work with a source of income being paid.

You also received additional lump sum payments.

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 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.

The expense of your medication 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 without the medication your XXXX may hinder your functionality in certain circumstances, but that does not alter the essential character of the expenses. That is, the medical expenses are private in nature.

Therefore, in your case, the necessary connection between the outgoing and the earning of assessable income does not exist, and the expense will not qualify for a deduction under section 8-1. The expense is considered private and domestic in nature and is not an allowable deduction