Private ruling: Deductions
Date of advice: 6 February 2026
Published: 30 March 2026
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the cost of corrective surgery incurred deductible to the Company under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: Background The Company carries on an adult-content and digital media business through subscription-based content services. The Company's income is generated from the Director's performance and physical presentation. The Company is a Personal Services Income (PSI) entity. Medical Condition The Director developed a medically diagnosed condition (the Condition) due to a previous surgery. Medical practitioners advised that the Condition: • would continue to worsen, • would not resolve without surgery, and • required corrective surgery. The Director underwent corrective surgery to address the Condition. The Company states that the Condition impaired the Director's ability to: • perform on camera, • pose, • record content, and • produce media for subscribers. The Company indicates that, without the corrective surgery, the Director's ability to continue generating PSI for the Company would have significantly declined or ceased.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: The corrective surgery is private in nature and lacks the necessary nexus with the Company's income producing activities. In addition, the Company did not incur the outgoing, and medical procedures of this kind are inherently private. Accordingly, the expenditure is not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for losses or outgoings to the extent that they are incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, an outgoing is not deductible where it is private, domestic or capital in nature. A requirement for deductibility is the existence of a sufficient nexus between the outgoing and the activities by which assessable income is produced. In Ronpibon Tin NL v Commissioner of Taxation (Cth) (1949) HCA 15 ( Ronpibon ), the High Court explained that an outgoing must be incidental and relevant to the income producing activities. The connection must be real and direct, not merely one that enables the taxpayer to be in a position to derive income. Medical and health related expenditure lacks this necessary nexus because its essential character is to maintain or restore the taxpayer's physical condition. While such expenditure may allow the taxpayer to be capable of performing work, it does not relate to the conduct of the income earning operations themselves. Taxation Ruling IT 2217 Income tax deductions: medical appliances (IT 2217) confirms that expenditure on medical and surgical appliances remains private in nature, even where the appliance assists a taxpayer to perform work duties. The character of the expense remains personal. This principle has consistently been reinforced by Taxation Boards of Review (the Board) decisions. In Case P31 82 ATC 141 (Case P31); Case 96 25 CTBR (NS) 715 (Case 96) , a quadriplegic law lecturer used a motorised wheelchair 75% of the time for work. The Board held that the expenditure was not deductible. Although, the wheelchair enabled the taxpayer to function at work, it did not have the necessary nexus with the income producing activities themselves. Its purpose was to address a personal disability, not to contribute to the process by which assessable income was generated. Similarly, in Case Ql7 83 ATC 62 (Case Q17); Case 82 26 CTBR(NS) 556 (Case 82) , a farmer's hearing aid was held not to be deductible. Even though the farmer considered the hearing aid essential for safely managing livestock, the Board found that the expenditure was directed toward overcoming a personal physical condition and therefore lacked the required nexus with earning assessable income. The purpose of the expenditure was to allow the taxpayer to function, not to produce income. These examples demonstrate that an outgoing does not meet the nexus requirement merely because the taxpayer cannot work without incurring it. An expense that remedies or manages a personal medical condition is private in nature, even if the taxpayer's ability to work is improved as a result. Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 (TR 2020/1) provides that a taxpayer cannot deduct expenses that they did not personally incur, including employer-paid or reimbursed expenses. Application to your circumstances The cost of corrective surgery does not have the required nexus with the Company's income producing activities. The expenditure is directed towards addressing a personal physical condition rather than the operations by which the Company derives income. Even if the Condition affects the individual's capacity to work, the essential character of the expenditure remains private because it relates to the individual's health, not to the conduct of the Company's business. The Company cannot deduct the amount as it did not incur the outgoing. Accordingly, the corrective surgery is not deductible under section 8-1 of the ITAA 1997.