Picture this scenario. After years of deteriorating health, you are forced to exit the workforce and rely on a Total and Permanent Disability (TPD) pension from your superannuation fund. That pension becomes your only source of income. At the same time, your medical needs escalate, and you spend tens of thousands of dollars on treatment simply to manage the condition that ended your career in the first place. It seems reasonable to think that those medical expenses should be deductible, given the disability is the reason the pension is paid. A recent tribunal decision shows the tax law does not always follow that logic. In Wannberg v Commissioner of Taxation [2025] ARTA 1561, the Administrative Review Tribunal (ART) confirmed the ATO’s stance that almost $100,000 in medical expenditure was not deductible. The case is a sobering example of how the tax system separates the act of earning income from the realities of maintaining personal health.

A Closer Look at the Wannberg Case

The taxpayer, Mr Wannberg, had withdrawn from employment due to serious physical and psychological injuries arising from long-term abuse. His TPD pension was the sole income supporting him. In 2024, he approached the ATO for a private ruling on whether approximately $98,000 of medical fees could be deducted. These included psychotherapy, residential rehabilitation programs, and extensive dental treatment. His reasoning was straightforward: the treatments were vital for stabilising his condition and effectively allowed him to continue receiving the pension. He drew parallels to the High Court’s 2010 decision in Anstis, where a student successfully claimed self-education expenses because they were sufficiently related to her Youth Allowance. However, the ATO rejected the deduction, and the tribunal upheld that decision.

Why the Medical Expenses Were Not Deductible

The entire dispute centred on section 8-1 of the Income Tax Assessment Act 1997. For an expense to qualify as a deduction, it must be incurred in the course of “gaining or producing assessable income,” and it cannot be private or domestic in character. The tribunal determined there was no necessary link between the medical treatments and the pension income. The TPD pension was payable because of the taxpayer’s disability—its continuation did not depend on undergoing medical treatment. The treatments improved his ability to cope day to day, but they did not contribute to generating the pension. Because of this lack of nexus, the expenses were categorised as private, similar to general medical bills, therapy sessions, or dental work, which are usually nondeductible regardless of their personal importance.

Key Lessons for Taxpayers

This decision provides important guidance for individuals receiving disability pensions, superannuation income streams, or other forms of support:

• The “nexus” requirement is strict: A deductible expense must be directly connected to the income you are earning. Most medical or therapeutic costs will not satisfy this test.
• Private expenses remain private: Even if treatment helps you manage a condition that affects work capacity, it generally does not convert the expense into a deductible one.
• Treatment vs assessment obligations: Some people must obtain regular medical certificates to keep a licence or accreditation needed for their job. These assessment-related costs can often be deductible. However, once it crosses into treatment, it becomes private.
• Prepare for non-deductible medical spending: Those relying on pension or disability payments should factor medical outlays into their budgeting. Explore whether private health insurance, rebates, or other concessions might ease the burden.
• Seek guidance before you spend: When large costs are involved, ask for professional advice or apply for an ATO private ruling to avoid unexpected outcomes.

Final Thoughts

The Wannberg case underscores a tough reality: tax law focuses on the connection between expenditure and income production, not the necessity of the expense for day-to-day life. Even legitimate, essential healthcare costs may fall outside the boundaries of deductibility. If you’re uncertain about whether an expense is deductible, it’s always safer to clarify the position early. Speak with us so we can help you evaluate your options, avoid pitfalls, and structure your affairs in a way that works best within the tax rules.

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By working with us as your professional tax accountant and mortgage broker, you can be confident that your loans are structured to protect your tax position, maximise deductions, and avoid costly mistakes, giving you greater peace of mind and more control over your financial future.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

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This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Zoe Ma @ Pitt Martin Tax