Private ruling: Deductions
Date of advice: 27 October 2025
Published: 15 December 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: XX X 20XX

Ruling: Q1: Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for costs incurred for consultations with medical practitioners and medical examinations to obtain medical assessment reports or statements where such documentation is required for ongoing assessment of your claim in relation to the payments you receive under your income protection policy? | A1: Yes | Q2: Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses incurred for retraining to be able to re-enter the workforce, where such expenses are required for the ongoing assessment of your claim in relation to the payments you receive under your income protection insurance policy? | A2: No

Relevant facts and circumstances: You stopped work due to a mental health condition. You started to receive Income Protection Benefits on XX X 20XX. You provide the following to your insurance provider for ongoing assessment of your claim: • Ongoing Claim Form, completed by yourself • Ongoing Treating Doctor Form, completed by treating doctor • Updates on your consultation with psychiatrist • Updates on your retraining. You provided a sample of an Ongoing Treating Doctor's Statement for your insurance provider. You provided examples of your income benefits payments from your insurance provider which are subject to taxation. You have provided a copy of the details of payments to your superannuation fund made by your insurance provider. You have provided a spread sheet with the relevant cost breakdowns which includes Medicare Rebates and Gap Payments. Your insurance provider provided you a rehabilitation program. You provided a copy of am email from your vocational services provider stating your insurance provider has confirmed their involvement until you are nearing completion of your studies. You provided copies of email correspondence between yourself and the vocational services provider. It was agreed you undertake further study to enable you to regain employment. You are currently enrolled in Diploma with a TAFE. You have provided a breakdown the cost related to your retraining in the spread sheet you provided.


Reasons for decision: Summary: Income protection policies provide for periodic payments in the event of loss of income caused by the insured becoming disabled through sickness or injury. These payments are assessable as income, as they are paid to take the place of lost earnings. The medical expenses are a requirement for the payment of the income protection benefits. You are entitled to a deduction for the cost of the medical appointments with the doctor and psychologist (and travel to those if required) for the (quarterly) reports to be prepared to provide to your insurance provider for ongoing assessment of your claim in relation to the payments you receive under your income protection policy. | Detailed Reasoning - Medical appointments: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable. However, outgoings of a capital, private or domestic nature are not deductible. 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. An amount paid to compensate for loss generally acquires the character of that for which it is substituted ( FC of T v. Dixon (1952) 86 CLR 540; (1952) 5 ATR 443; 10 ATD 82). Compensation payments which substitute income have been held by the courts to be income under ordinary concepts ( FC of T v. Inkster (1989) 20 ATR 1516; 89 ATC 5142; Tinkler v. FC of T (1979) 10 ATR 411; 79 ATC 4641; Case U47 (1991) 22 ATR 3422; ATC 433). The requirement for the taxpayer to provide a medical certificate at regular intervals to the paying authority to ensure the continued receipt of compensation payments, is analogous to the activity test considered by the High Court in Federal Commissioner of Taxation v. Anstis (2010) 241 CLR 443; (2010) ATC 20-221; (2010) 76 ATR 735 ( Anstis ). In the taxpayer's case, the travel by plane to attend appointments is a necessary part of obtaining the required medical certificate to maintain the taxpayer's statutory entitlement to compensation payments. The travel expenses are incurred in maintaining the entitlement to income by satisfying the specific requirements of the compensation legislation and are therefore incurred in gaining or producing the assessable compensation payments. | Detailed Reasoning - Application to your circumstances: In your case, you are required by your insurance provider to fulfil certain requirements to receive assessable income protection payments, namely obtain medical assessment reports or statements from a medical practitioner. As such the expenses for the medical assessment reports or statements are expenses incurred to establish and retain your income protection payments. Therefore, you are entitled to a deduction for the amounts paid to your medical practitioner to receive the required medical assessment reports or statements. Where there is a requirement to provide a medical assessment report or statements at regular intervals to the paying authority as a condition of receipt of workers compensation payments, the travel expenses incurred to obtain the medical assessment reports or statements are deductible under section 8-1 of the ITAA 1997. You are entitled to a deduction for the travel expenses associated with obtaining the medical assessment reports or statements required by your insurance provider. The report required by your insurance provider includes updates about your consultations with the psychiatrist these expenses would fall into the treatment and rehabilitation categories and are private in nature and not deductible under section 8-1 of the ITAA 1997. Ongoing psychologist treatment also falls into the category of private in nature and not deductible under section 8-1 of the ITAA 1997. You cannot claim transport expenses to attend these appointments for treatment, medication and rehabilitation. | Summary: Although the reports for your insurance provider require updates on your retraining, these expenses would fall into the rehabilitation categories and are private in nature. Although it is accepted that these expenses are a necessary pre-condition to enable you to return to employment, this does not change the fact that these expenses under section 8-1 of the ITAA 1997, are private in nature. You are therefore not entitled to a deduction for your retraining expenses under section 8-1 of the ITAA 1997. | Detailed Reasoning - Retraining expenses: Subsection 8-1(1) of the ITAA 1997 states that you can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income. However, subsection 8-1(2) of the ITAA 1997 states that you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. It is necessary to determine whether there is the requisite 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 (WA) Pty Ltd v. Federal Commissioner of Taxation [1956] HCA 77; Federal Commissioner of Taxation v. Hatchett [1971] HCA 47; Federal Commissioner of Taxation v. Cooper [1991] FCA 164 . The character of the advantage sought provides the best guidance as to the nature of the expenditure because it says the most about the essential character of the expenditure itself. The decision of the High Court in G P International Pipecoaters Pty Ltd v Commissioner of Taxation (1990) 170 CLR 124 at 137 emphasised this stating: The character of expenditure is ordinarily determined by reference to the nature of the asset acquired. For the character of the advantage sought by the making of the expenditure is the chief, if not the critical, factor in determining the character of what is paid: Sun Newspapers Ltd. and Associated Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337 at 363... Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 sets out when an employee can deduct a work expense under section 8-1 of the ITAA 1997 Paragraphs 22, 23 of TR 2020/1 state: 22. The requirement that expenses be incurred in the course of producing assessable income means that it is not enough to show only that there is some general link or causal connection between expenditure and the production of income. The expenditure must have a sufficiently close connection to performance of the employment duties and activities through which the employee earns income. 23. Accordingly, in some cases, expenditure would be regarded as too remote from the income-earning activities or incurred only as a prerequisite to earning income, and not incurred in the course of producing that income...... Expenses for 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. The nature or character of the expenses follows the advantage that is sought to be gained by incurring the expenses. For expenses to constitute an allowable deduction, it must be shown that they are incidental or relevant to the production of the taxpayer's assessable income. | Detailed Reasoning - Application to your circumstance: You are undertaking a Diploma of Project Management as this would be beneficial in gaining future employment. These expenses are a requirement for you gain future employment. Although your insurance provider requires updates on your retraining, these expenses have a casual connection with receiving your income protection payment and do not have a sufficient close connection directly related to receiving your income protection payments. The advantage sought is future employment. These expenses are private in nature and a prerequisite to earning assessable income. You are therefore not entitled to a deduction for your retraining expenses under section 8-1 of the ITAA 1997.

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