Imagine you are forced to retire early due to severe illness. Your only income is a Total and Permanent Disability (TPD) pension from your super fund. Then, you face enormous medical bills for treatments related to the condition that ended your career. You might logically assume these costs are tax-deductible. A recent tribunal case, however, confirms this is often not true.

In Wannberg v Commissioner of Taxation [2025] ARTA 1561, the Administrative Review Tribunal supported the ATO’s decision to deny almost $100,000 in medical expense deductions. This case serves as a stark lesson. 

The Story Behind the Case

Mr Wannberg left his work because of profound mental and physical health issues. His TPD pension was his sole source of income. He asked the ATO for a private ruling on whether $98,000 of medical treatments were deductible. These treatments included psychotherapy and dental work. He argued they were essential for managing his disability and, by extension, his pension eligibility. He even referenced a past High Court case concerning a student’s education costs.

The ATO rejected his claim, and the tribunal agreed with this outcome.

Why the Deductions Were Denied

The decision rested on a fundamental tax law principle found in section 8-1 of the Income Tax Assessment Act 1997. A deductible expense must be directly linked to earning your assessable income. It also must not be a private or domestic cost.

The tribunal found no direct connection between Mr Wannberg’s medical treatments and his pension income. The pension was paid because he had a disability, not because he was undergoing treatment to earn it. The medical costs helped him live with his condition, but they did not produce his assessable income. Therefore, the expenses were considered private, just like most medical or dental bills.

What This Means for You

First, you must understand the “nexus” test. An expense must have a direct connection to how you earn your income. General medical costs for managing a health condition usually fail this test. The law draws a clear line between personal wellbeing and income production. Most medical needs, no matter how genuine, fall on the private side of this line.

There is a distinction between treatment and assessment. For example, the cost of a medical certificate required to maintain a professional licence can be deductible. This is different from the cost of receiving actual medical treatment. If you rely on a pension, you should plan for these non-deductible costs. Explore options like private health insurance or available rebates to ease the financial burden.

Most importantly, seek professional advice before making large expenditures. Do not guess about the tax outcome. You can always consult a qualified advisor beforehand.

The Wannberg case is a difficult reminder that tax law focuses on income production, not personal circumstances. If you are uncertain about an expense, please talk to us first.