Imagine a scenario where, after enduring years of hardship and serious health challenges, you find yourself compelled to retire earlier than anticipated, relying solely on a Total and Permanent Disability (TPD) pension from your superannuation fund. This pension represents your sole source of income. Yet, an onslaught of medical expenses emerges—costing you tens of thousands of dollars for treatments aimed at managing the very conditions that led to your career’s cessation. You might naturally assume that these expenses are tax-deductible, given that the TPD pension is provided due to your disability. However, a recent tribunal case underscores that the reality is far more complex.
In the notable case of Wannberg v Commissioner of Taxation [2025] ARTA 1561, the Administrative Review Tribunal (ART) upheld the Australian Taxation Office’s (ATO) decision to reject nearly $100,000 in medical deductions. This case serves as a poignant reminder that the tax system distinctly differentiates between earning income and managing health responsibilities.
The Narrative of the Case
Mr Wannberg, the taxpayer at the centre of this case, exited the workforce due to debilitating mental and physical health challenges stemming from years of distress. His sole income is derived from the TPD pension awarded by his superannuation fund. In 2024, Mr Wannberg sought clarification from the ATO, requesting a private ruling on whether approximately $98,000 in medical expenses—encompassing psychotherapy, residential treatment, and dental care—could be claimed as deductions.
His argument was both sincere and logical: the treatments were crucial for managing his disabilities and maintaining his eligibility for the pension. He aptly referenced a 2010 High Court ruling (Anstis), in which a student was permitted to deduct self-education costs incurred in relation to her receipt of Youth Allowance. However, the ATO denied his request, a decision subsequently affirmed by the tribunal.
Why the Deductions Were Denied
At the heart of this matter lies a specific piece of tax legislation: section 8-1 of the Income Tax Assessment Act 1997. For an expense to be deductible, it must be incurred in “gaining or producing your assessable income”. It must not possess a private or domestic character.
The tribunal concluded that there was no direct connection—or “nexus”—between the medical treatments and the income derived from the TPD pension. The pension was awarded based on Mr Wannberg’s disability, rather than on any ongoing efforts to maintain it. As articulated by the tribunal, while the medical costs recognised his ability to manage his condition, they did not generate the pension income. In essence, while maintaining one’s health is undoubtedly essential to personal well-being, those expenses are not tax-deductible. The costs were deemed private in nature, akin to the majority of therapy, medical, and dental bills.
Implications for You
This ruling provides several crucial insights for individuals receiving disability pensions, superannuation income streams, or other forms of support payments:
- Appreciate the “Nexus” Test: An expense must explicitly facilitate income generation. Typically, medical costs associated with managing a condition do not fulfil this requirement.
- Acknowledge the Distinction of Personal Nature: Even if a treatment is connected to your capacity to work, it is likely considered “private” unless it is directly related to income generation.
- Understand Differences Between Treatment and Assessment: Certain taxpayers may need to acquire certificates from medical professionals to maintain their licenses and continue income-generating activities. Such costs are often deductible unless they pertain to medical treatment.
- Prepare for Non-Deductible Expenses: If you depend on disability or superannuation pensions, it’s essential to incorporate medical expenses into your financial planning. Explore insurance options, offsets, or rebates (such as private health insurance or Medicare levy exemptions) to help alleviate this financial burden.
- Seek Guidance Early: Before incurring significant expenses, consider obtaining an ATO private ruling or professional advice to navigate the complexities of tax law.
The Wannberg case serves as a sobering reminder that tax regulations tend to prioritise how income is generated over personal well-being. The system establishes a firm boundary between health-related expenses and income production—often placing legitimate medical needs on the unintended side of that line.
If you are questioning whether an expense is deductible, please do not hesitate to reach out to us. We are here to assist you in planning, ensuring compliance, and optimising the rules that work to your advantage. With the proper support, you can navigate these complexities with confidence and clarity.