Tax Deductions for Medical Bills: Sorting Real Gold from the Glitter
Medical bills can feel like they drain your bank balance faster than gold dust slips through your fingers. For many Australians—especially those dealing with illness, disability, or early retirement—those bills can be overwhelming. So it’s natural to wonder: Are medical expenses tax deductible?
A recent tribunal case shows the answer is often far less golden than many hope. While the tax system supports many kinds of deductions, medical bills sit in a category the ATO guards tightly.
Let’s break down what the rules really say, what the Wannberg case teaches us, and how to stay on the right side of the law.
Key Takeaways
- Medical treatments are not tax deductible in Australia because they are considered private expenses.
- To qualify for a deduction, a cost must directly help produce assessable income under section 8-1 ITAA 1997.
- Disability pensions and TPD income streams do not create a tax-deductible link to medical expenses.
- Only compulsory medical assessments, required for current employment, may be deductible.
- Consider rebates such as the private health insurance rebate or Medicare levy exemptions, since no medical expense offset exists.
- Always seek professional advice before assuming any health-related cost is deductible.
The Wannberg Case: A Reality Check
In Wannberg v Commissioner of Taxation [2025] ARTA 1561, the Administrative Review Tribunal (ART) made one point very clear: medical treatment expenses remain private and non-deductible, even in cases of significant hardship.
The taxpayer had retired early due to severe mental and physical health conditions and relied solely on a Total and Permanent Disability (TPD) pension from his super fund. He spent close to $100,000 on psychotherapy, residential treatment programs, and dental work—costs he believed were essential to managing the very conditions that led to his TPD income.
He argued these expenses should be deductible because they were directly tied to the disability that triggered his pension.
But the tribunal disagreed.
The Missing Nexus
Under section 8-1 of the Income Tax Assessment Act 1997, an expense is deductible only if it is incurred in gaining or producing assessable income and is not private.
The ART found no clear connection—known as the nexus test—between the medical costs and the pension income. The pension was paid because of the disability, not because the expenses helped produce it.
As Cordner Advisory summarised in its commentary on the case: “Medical treatment, even where linked to a disability that triggers a pension, remains private and not deductible.”
The treatments helped the taxpayer manage his condition, but they did not generate the pension. That distinction mattered.
Why Most Medical Bills Aren’t Deductible
The ATO is very clear: most medical, dental, therapy, optical, and psychological treatment expenses cannot be claimed as deductions.
According to the ATO: “You can’t claim a deduction for medical or dental expenses because they are non-deductible expenses.”
This includes:
- GP visits
- Psychologists and psychiatrists
- Hospital fees
- Dental work
- Treatment programs or therapy
- Medical aids and appliances
And importantly, the old Net Medical Expenses Tax Offset was abolished after 30 June 2019, meaning no offsets or deductions apply to general medical costs anymore.
The Only Exception: Compulsory Medical Assessments
While medical treatment expenses are non-deductible, the ATO does allow deductions for mandatory medical assessments required to perform your current job.
Examples include:
- A fitness-to-drive examination for commercial drivers
- Employer-required health checks for specific roles
- Some mandatory COVID-19 tests required by a workplace
This exception is narrow. It applies only when the medical assessment is a condition of doing your job—not when it relates to treatment, ongoing care, or general health.
ATO reference: Medical and dental expenses, vaccinations and COVID-19 tests – Deductions you can and can’t claim.
What This Means for You
1. Understand what is not deductible
Medical treatment expenses—no matter how necessary—are simply not deductible.
2. Know what may be deductible
Only compulsory assessments required right now for your job may qualify.
3. Your pension type doesn’t create deductibility
Disability pensions, TPD income streams, and super pensions do not create a deductible link to medical treatment.
4. Plan your finances with this in mind
Since medical costs are non-deductible, factor them into your budgeting.
You may still benefit from:
- the private health insurance rebate
- a Medicare levy reduction or exemption (if eligible)
But medical treatment bills themselves won’t be offset through your tax return.
5. Seek advice before committing to large costs
When in doubt, speak with a tax professional or obtain a private ruling from the ATO.
Turning Tax Confusion Into Golden Clarity
The tax law draws a firm boundary between income generation and personal wellbeing. Even where medical treatment is essential, compassionate, or life-changing, it still falls on the non-deductible side of that line.
If you’re unsure whether a medical or health-related cost may be deductible, don’t rely on guesswork. Talk to DJ Grigg Financial. We’ll help you avoid costly mistakes, understand the rules, and uncover the deductions that are available—so you can focus on your health while we take care of the tax.