Private ruling: Medical expenses
Date of advice: 28 April 2016
Published: June 2016
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for the cost of your operation? | A1: No. | Q2: Are you entitled to a medical expenses tax offset? | A2: No.


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

Reasons for decision: Summary: 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. 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 Ql7 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. In your case, you had an operation. It is acknowledged that the operation was necessary to avoid further health issues and helped you at work. 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 private in nature and is not an allowable deduction. Therefore, you cannot claim a deduction for the cost of your operation. Medical expenses tax offset A medical expenses tax offset may be available under subsection 159P(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where you pay certain medical expenses in an income year for yourself or a dependant who is an Australian resident, to the extent that you are not reimbursed, or are eligible to be reimbursed, from a government or public authority or a society, association or fund. Under recent changes to the legislation, the medical expenses tax offset is being phased out. To be eligible to claim a medical expenses tax offset in 2014-15, you must have either: • received this offset in your 2012-13 and 2013-14 income tax assessments, or • paid for medical expenses relating to disability aids, attendant care or aged care. For the 2015-16 financial year, an amount that would otherwise be paid as medical expenses is treated as not being paid as medical expenses unless the payment relates to a disability aid, attendant care or aged care (subsection 159P(1B) of the ITAA 1936). In your case you did not receive a medical expenses tax offset in the 2012-13 or 2013-14 financial years. Your medical expenses do not relate to disability aids, attendant care or aged care. Therefore you are not entitled to a medical expenses tax offset in relation to your operation. Your specific circumstances are acknowledged, however, the legislation provides no discretion in your situation and does not allow a medical expenses tax offset.

Relevant facts: You have been advised by your doctor to strongly consider surgery. | In the past you wore glasses. The glasses were found to have caused health and safety issues at work. | You did not receive a medical expenses tax offset in 2012-13 or 2013-14 financial years.