Private ruling: Deduction - medical, travel and legal expenses
Date of advice: 9 July 2025
Published: 1 September 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the portion of your medical appointment and travel expenses (accommodation) incurred for obtaining medical reports in relation to the regular payments you receive under your income protection policy? | A1: Yes. | Q2: Are you entitled to a deduction under section 8-1 of the ITAA 1997 for the portion of your medical appointment and travel expenses (accommodation) incurred for obtaining medical reports in relation to the lump sum superannuation payment you have received under your TPD policy? | A2: No. | Q3: Are you entitled to a deduction under section 8-1 of the ITAA 1997 for the portion of your legal expenses incurred in relation to the regular payments you receive under your income protection policy? | A3: Yes. | Q4: Are you entitled to a deduction under section 8-1 of the ITAA 1997 for the portion of your legal expenses incurred in relation to the lump sum superannuation payment you have received under your TPD policy? | A4: No.

Relevant facts and circumstances: You were employed with an Australian employer since early 20XX. In mid-to-late 20XX, you underwent a procedure that resulted in significant and ongoing health complications. Legal proceedings are currently underway in relation to alleged negligence associated with this surgery (the medical negligence claim). As a result, you continue to suffer from debilitating symptoms. These issues have left you unable to work since late 20XX and continue to prevent you from returning to work. The health complications are entirely unrelated to any of your business activities. As a result of these health issues, from mid-to-late 20XX you have claimed and continue to receive regular income protection insurance payments under a policy held with your insurance provider. The premiums were paid via deductions from your Superannuation Guarantee payments in your super fund. Whilst the payments were received from your superannuation fund, these payments are still assessable income. You have supplied income protection benefit statements in relation to the regular income protection insurance payments you receive. To continue receiving the ongoing income protection insurance payments, you are required to arrange for your medical practitioner to complete a report on your ongoing condition every three months. These reports were required by the insurer in connection to your ongoing eligibility for the income protection payments, along with a lump sum superannuation payment which you eventually received in late 20XX under your Total and Permanent Disability (TPD) policy held with your insurance provider. You have supplied a letter from your insurance provider dated in late 20XX, which specifies the following regarding the lump sum superannuation payment you received: Gross TPD benefit $X Tax free component $X Element taxed $X Element untaxed $0.00 Tax withheld $X Net payment $X You have also supplied a PAYG Payment Summary from your insurance provider which refers to this payment as a Superannuation Lump Sum. Legal Expenses You incurred legal expenses in relation to your income protection insurance claim and a separate claim for the lump sum superannuation payment. You engaged legal support to assist with understanding the policy terms, responding to the insurer's information requests, and managing correspondence and negotiations. This included guidance on providing medical documentation, ensuring compliance with policy requirements, and clarifying your eligibility and ongoing entitlement to payments. Due to the severity of your illness you were, and remain, unable to manage this process independently. The legal assistance has been essential in ensuring both of your claims could be properly pursued and maintained. Costs incurred You have supplied a table of report costings and usages (prepared by your lawyer) which confirms the details of each report and appointment. Documentation is available to clearly separate medical report fees from any consultation charges that may have occurred at the same time as well as reports that were used solely for your medical negligence case. Some of the costs incurred were also used exclusively for the lump sum superannuation payment and income protection. However, some of the costs related to both the lump sum superannuation payment and income protection insurance payments, along with your separate claim for medical negligence. Travel expenses You have incurred accommodation and meal expenses in connection with obtaining the abovementioned medical reports.

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

Reasons for decision: Summary: The portion of your medical appointment and travel expenses (accommodation) incurred for obtaining medical reports in relation to the payments you receive under your income protection policy directly relate to the earning of your assessable income and are therefore deductible under section 8-1 of the ITAA 1997. However, the portion of your medical appointment and travel expenses (accommodation) incurred for obtaining medical reports in relation to the lump sum superannuation payment you received under your Total and Permanent Disability (TPD) policy held with your insurance provider are capital in nature and are therefore not deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Question 3: Are you entitled to a deduction under section 8-1 of the ITAA 1997 for the portion of your legal expenses incurred in relation to the payments you receive under your income protection policy? | Detailed Reasoning - Question 4: Are you entitled to a deduction under section 8-1 of the ITAA 1997 for the portion of your legal expenses incurred in relation to lump sum superannuation payment you received under your Total and Permanent Disability (TPD) policy held with your insurance provider? | Summary: The portion of your legal expenses incurred in relation to the payments you receive under your income protection policy directly relate to the earning of your assessable income and are therefore deductible under section 8-1 of the ITAA 1997. However, the portion of your legal expenses incurred in relation to the lump sum superannuation payment you received under your Total and Permanent Disability (TPD) policy held with your insurance provider are capital in nature and are therefore not deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Medical and travel expenses: Section 8-1 of the ITAA 1997 allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature. Generally medical expenses have no direct connection to the gaining or producing of assessable income and a deduction is not allowable. Medical expenses for treatment and rehabilitation have a private character, even if they are a requirement for receiving assessable income. Subsection 8-1 (2) of the ITAA 1997 states that you cannot deduct a loss or outgoing if it is of a private or domestic nature. However, where it can be shown that a medical expense has the required nexus between the expense and earning of assessable income, the expense may be deductible. Where the expense is required for payment of income protection benefits, there is a direct connection between the expense and the earning of assessable income. Despite this, the nature or character of the expenses follows the advantage that is sought to be gained by incurring the expenses. If the advantage to be gained is of a capital nature, then the expenses incurred in gaining the advantage will also be of a capital nature. The fact that a capital payment is specifically brought to account as assessable income does not change the nature of the payment. An amount that is capital in nature remains capital notwithstanding that it is specifically included as assessable income. | Detailed Reasoning - Legal expenses: In determining whether a deduction for legal expenses is allowable under section 8-1 of the ITAA 1997, the nature of the expenditure must be considered (Hallstroms Pty Ltd v. Federal Commissioner of Taxation (1946) 72 CLR 634; (1946) 3 AITR 436; (1946) 8 ATD 190). The nature or character of the legal expenses follows the advantage that is sought to be gained by incurring the expenses. In Tax Determination TD 93/29 Income tax: if an employee incurs legal expenses recovering wages paid by a dishonoured cheque, are these legal expenses an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997? the Commissioner states that legal expenses incurred by an employee in recovering unpaid wages are deductible under section 8-1 of the ITAA 1997, as the expenses are directly incurred in the process of deriving payments of a revenue nature that are assessable. However, if the legal action is not a claim for a revenue item such as wages, but instead is a claim for a capital payment, the legal costs will not be deductible. As is the case with your medical expenses, If the advantage is of a capital nature, then the expenses incurred in gaining the advantage will also be of a capital nature and therefore not deductible. An amount that is capital in nature will remain capital notwithstanding that it is specifically included in the assessable income of the taxpayer. | Detailed Reasoning - Medical expenses: In your case, you were required to fulfil certain requirements to continue receiving assessable income protection payments, which included obtaining medical reports from your medical practitioner. Therefore, the expenses you incurred for the portion of your medical appointment and travel expenses (accommodation) for obtaining medical reports relating to the payments you receive under your income protection policy are expenses incurred to establish and retain your income protection payments. Therefore, you are entitled to a deduction for these amounts. However, the expenses you incurred for the portion of your medical appointment and travel expenses (accommodation) for obtaining medical reports in relation to the lump sum superannuation payment you received under your Total and Permanent Disability (TPD) policy held with your insurance provider. are capital in nature, as the lump sum superannuation payment is a capital payment you received. Therefore, you are not entitled a deduction for these amounts. | Detailed Reasoning - Legal expenses incurred in relation to your ongoing income protection insurance payments: In your case you incurred legal expenses in relation to receiving an income protection insurance payment. As these payments represent a replacement of your salary and wages, they are revenue in nature and assessable. The associated legal expenses incurred in relation to your claim for income protection payments relates sufficiently to the earning of your assessable income and are therefore deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Legal expenses incurred in relation to your lump sum TPD payment: You also incurred the legal expenses to obtain a lump sum superannuation payment under your Total and Permanent Disability (TPD) policy held with your insurance provider. Such a lump sum is a capital receipt. The taxation of superannuation payments is determined by specific legislative provisions. Superannuation capital payments, or parts of such payments, may nevertheless be included in assessable income by those specific legislative provisions. Although the taxed element of your superannuation benefit will be included in your assessable income, the superannuation benefit retains its character as a capital receipt. As the lump sum superannuation payment you received under your Total and Permanent Disability (TPD) policy held with your insurance provider is capital in nature, the expenses incurred in relation to this part of your claim are also capital in nature. Consequently, no deduction is allowable under section 8-1 of the ITAA 1997 for the legal expenses you incurred in relation to the lump sum superannuation payment you received under your Total and Permanent Disability (TPD) policy held with your insurance provider as expenditure of a capital nature is expressly excluded under section 8-1 of the ITAA 1997.

Question 1: Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the portion of your medical appointment and travel expenses (accommodation) incurred for obtaining medical reports in relation to the payments you receive under your income protection policy? | Question 2: Are you entitled to a deduction under section 8-1 of the ITAA 1997 for the portion of your medical appointment and travel expenses (accommodation) incurred for obtaining medical reports in relation to the lump sum superannuation payment you received under your Total and Permanent Disability (TPD) policy held with your insurance provider?