Private ruling: Work related expenses and medical expenses tax offset
Published: July 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to deduction for the expenses incurred in purchasing human hair pieces? | A1: No | Q2: Can the costs paid for the purchase of human hair pieces be included in the calculation of your medical expenses for the purposes of the medical expenses tax offset? | A2: Yes

Relevant facts and circumstances: You are an Australian resident. You have a medical condition. Your doctor referred you to a specialist and after unsuccessful treatments you were prescribed human hair pieces as your condition is permanent. The human hair pieces are medically glued. You have not made any claim from your private health insurer or Medicare.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1936 Section 159P

Reasons for decision: Summary: Section 8-1of 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. Medical expenses have no direct connection to the gaining or producing of assessable income. The purpose of the expenses is more directly related to your health. There is insufficient connection to the gaining or production of assessable income as the expenditure is too remote. In addition, medical expenses can be characterised as being of a private nature and therefore can also be excluded on that ground. In you case, you incurred expenses on the purchase of human hair pieces. It is considered that the costs incurred do not have the necessary connection with the earning of your assessable income. They are considered to be private in nature and therefore are not deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Medical expenses tax offset: A medical expenses tax offset is available to a taxpayer under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer pays medical expenses in an income year for themselves or a dependant who is an Australian resident. The medical expense tax offset is only available if the amount of medical expenses (reduced by any entitlement to reimbursement from a health fund or government authority) in an income year exceeds the threshold amount. The threshold for the 2011-12 income year is $2,060. Paragraph 159P(4)(f) of the ITAA 1936 provides the definition of 'medical expenses' and includes payments in respect of a medical or surgical appliance prescribed by a legally qualified medical practitioner. Taxation Ruling TR 93/34 explains the meaning of a medical or surgical appliance as an instrument, apparatus or device which is manufactured as, distributed as, or generally recognised to be an aid to the function or capacity of a person with a disability or illness. This definition looks to the character of the appliance, not the purpose for which it is prescribed or used. It is not sufficient that a medical practitioner prescribes an appliance for medical or surgical ends. To be a medical or surgical appliance an item must be manufactured as, distributed as, or generally recognised to be an aid to a person's function or capacity. The definition of medical or surgical appliance includes: Medical or surgical wigs for use by a person which is necessitated by loss of hair through sickness or disease (other than naturally occurring baldness) or the effects of the treatment of sickness or disease. An example provided in TR 93/34 at paragraphs 23 and 24 is a woman who suffers from a disease that causes baldness. She suffers extreme embarrassment and psychological stress associated with baldness. The woman's doctor advises her that she should wear a wig. If the wig is a medical or surgical wig and relieves potential incapacity it is a medical or surgical appliance. A medical or surgical wig is made to measure and has a special type of construction. In your case, the human pieces were prescribed by a legally qualified practitioner and are made to measure. Therefore, the expenses incurred in purchasing your human hair pieces qualifies as a medical expense as defined in subsection 159P(4) of the ITAA 1936.

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