When Medical Bills Meet Tax Rules – Lessons from a Heartbreaking Case

Imagine this: after years of hardship and illness, you’re forced to retire early on a Total and Permanent Disability (TPD) pension from your super fund. It’s your only income stream. Then come the medical bills — tens of thousands of dollars in treatments to manage the very conditions that ended your career. You might assume those costs are tax deductible.

Unfortunately, a recent tribunal case shows it’s not that simple.

Wannberg v Commissioner of Taxation [2025] ARTA 1561

• The Administrative Review Tribunal (ART) upheld the ATO’s decision to deny nearly $100,000 in medical deductions.
• The case highlights the sharp line tax law draws between earning income and personal health expenses.
  

The Story Behind the Case

• Mr Wannberg left the workforce due to severe mental and physical health issues caused by years of abuse.
• His TPD pension from his super fund was his only income.
• In 2024, he asked the ATO whether approximately $98,000 in medical expenses — including psychotherapy, residential treatment, and dental work — could be claimed as deductions.
• He argued the treatments were essential to manage his disabilities and sustain his eligibility for the pension, citing a previous High Court case (Anstis, 2010) as precedent.

The ATO said no — and the tribunal agreed.

Why the Deductions Failed

• The key issue: Section 8-1 of the Income Tax Assessment Act 1997.
• To be deductible, an expense must be:
  1. Incurred in gaining or producing your assessable income, and
  2. Not of a private or domestic nature.
• The tribunal found no direct nexus between the medical treatments and the pension income:
  • The TPD pension was payable because of the disability, not due to any ongoing effort to maintain it.
  • Medical costs helped him live with his condition but did not produce the pension.

In short: staying healthy is personally essential, but it doesn’t make the expenses tax-deductible. Most therapy, medical, or dental bills remain private in nature.

Key Takeaways

1. Understand the “nexus” test
   • Expenses must directly help you earn your income. Medical costs for managing a condition usually don’t qualify.
2. Recognise the private line
   • Even if a treatment relates to your ability to work, it’s likely still private unless it directly relates to producing income.
3. Treatment vs income-related obligations
   • Some taxpayers must obtain medical certificates to maintain a licence or continue income-producing work. These costs can be deductible, unlike general medical treatment.
4. Plan for non-deductible costs
   • If you rely on disability or super pensions, factor medical expenses into your financial plan. Consider insurance, offsets, or rebates (e.g., private health or Medicare levy exemptions).
5. Seek advice early
   • Before spending large sums, get an ATO private ruling or professional advice.
     

Bottom line:

The Wannberg case reminds us that tax law cares more about how income is produced than how life is lived. Even genuine medical needs often fall on the wrong side of the line for deductions.

If you’re unsure whether an expense might be deductible, don’t guess — seek advice to plan ahead, stay compliant, and make the most of the deductions that are available.

If you have questions or concerns, please do not hesitate to contact our office to speak to one of our team.