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 because your TPD pension exists due to your disability. Unfortunately, a recent tribunal case shows it’s not that simple.

In 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 is a stark reminder that Australia’s tax law draws a firm line between earning income and managing personal wellbeing.

The story behind the case

The taxpayer, Mr Wannberg, had left the workforce due to severe mental and physical health issues resulting from years of abuse. His TPD pension from his super fund was his only source of income.

In 2024, he applied for an ATO private ruling, asking whether about $98,000 in medical expenses — including psychotherapy, residential treatment, and dental work — could be claimed as tax deductions.

His argument was logical and heartfelt: these treatments were essential to manage his disabilities and sustain his eligibility for the TPD pension. He compared his case to the 2010 High Court decision in Anstis, where a student successfully claimed self-education deductions related to her Youth Allowance.

However, both the ATO and the tribunal disagreed.

Why the deductions failed

The decision turned on a key piece of legislation — section 8-1 of the Income Tax Assessment Act 1997. To be deductible, an expense must be incurred “in gaining or producing your assessable income” and must not be of a private or domestic nature.

The tribunal found no direct link (or “nexus”) between the medical treatments and the pension income. The pension was payable because of his disability — not as a result of any ongoing efforts to maintain it.

As the tribunal explained, the medical expenses helped him manage his condition, but they didn’t generate his pension income. The costs were considered private in nature, similar to most therapy, medical, or dental bills.

In other words: maintaining your health may be essential for your quality of life, but that doesn’t make related medical expenses tax-deductible.

Key lessons from the Wannberg case

This decision highlights several important takeaways for individuals receiving disability pensions, superannuation income streams, or similar payments:

• Understand the “nexus” test: An expense must directly help produce income. Medical costs for managing a condition generally don’t qualify.

• Recognise the private boundary: Even if a treatment relates to your capacity to work, it remains “private” unless it directly supports income production.

• Treatment vs assessment: Costs to obtain medical certificates or assessments required for work (e.g. maintaining a professional licence) may be deductible — but treatment costs usually aren’t.

• Plan for non-deductible expenses: If you rely on a TPD or disability pension, factor medical costs into your financial plan. Explore options such as insurance, offsets, or Medicare-related concessions.

• Seek professional advice early: Before spending large amounts, obtain an ATO private ruling or professional tax advice to confirm deductibility.

What this means for you

The Wannberg decision reinforces that the Australian tax system focuses on how income is earned, not how it’s spent. Medical and personal wellbeing costs, no matter how genuine, usually fall outside deductible boundaries.

If you receive income from a TPD pension or superannuation stream and are unsure whether an expense may be deductible, don’t guess — talk to Indigo Financial first.

We can help you plan ahead, stay compliant, and take advantage of the tax strategies that genuinely work in your favour.

Contact Indigo Financial on (08) 8212 8585 if you need help with any of your accounting and taxation needs.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.