Deducting cannabis from tax: Requirements & Tips

In short: Tax deduction for cannabis

The central starting point is § 33 of the Income Tax Act (EStG). According to this, unavoidable extraordinary burdens can be taken into account for tax purposes. This generally includes necessary medical expenses, provided that the affected person is actually financially burdened and the costs have not been reimbursed.

Medical cannabis is not treated under a special tax regulation for cannabis. Rather, the general provisions for medically prescribed pharmaceuticals apply.

In its ruling of April 14, 2015, with file number VI R 89/13, the Federal Fiscal Court clarified that expenses for medicines can be considered an extraordinary burden if the medication is for an illness and has been prescribed by a doctor. Although the decision did not concern medical cannabis, it provides the relevant tax law principle for prescribed medications.

For proof, § 64 Paragraph 1 Number 1 of the Income Tax Implementation Ordinance is particularly important. According to this, the unavoidable nature of expenses for medicines, remedies, and aids must generally be proven by a prescription from a doctor or naturopath. In the case of medical cannabis, a doctor's prescription is required, as cannabis for medical purposes may only be prescribed by doctors according to § 3 of the Medicinal Cannabis Act.

Since 2017, medical cannabis can be prescribed by doctors in Germany. Since April 1, 2024, the medical sector has been regulated separately in the Medicinal Cannabis Act. Medicinal cannabis remains a prescription-only medicine that is dispensed by a pharmacy based on a doctor's prescription.

Therefore, it is less important whether the tax office personally considers the specific form of therapy to be sensible. In the case of typical and direct medical expenses, the Federal Fiscal Court generally assumes that these are unavoidable. However, the connection between the illness, the doctor's prescription, and the expenses claimed must be clearly documented.

Not every expense incurred in connection with therapy is automatically taken into account. The decisive factor is whether the costs were directly caused by the medical treatment and had to be borne by the affected person themselves.

Typically, the following can be considered:

• Pharmacy costs for medically prescribed cannabis
• statutory or private prescription co-payments
• self-paid medical examinations and necessary treatment appointments
• costs for medical prescriptions or certificates, if separate fees were incurred for them
• where applicable, other directly medically incurred costs

All reimbursements must be deducted from the total costs. For example, if a health insurance company covers 2,000 euros out of a total of 5,000 euros, a maximum of the remaining 3,000 euros can be claimed as self-paid medical expenses.

More problematic are expenses for devices, accessories, or products whose medical necessity cannot be clearly proven. An accessory item does not become an extraordinary burden merely because it is used together with a prescribed medication.

Expenses without a medical prescription are also not equivalent to prescribed medicines for tax purposes. The decisive factor is not the name of the product, but the verifiable medical and medically induced context.

The role of the reasonable burden

Even if all requirements are met, the entire sum is not automatically taken into account for tax purposes. According to Section 33 Paragraph 3 of the Income Tax Act (EStG), an individual reasonable burden is first calculated.

Its amount depends on:

• the total amount of income
• the marital status or the type of assessment
• the number of children to be taken into account for tax purposes

The percentages range between one and seven percent, depending on the personal situation. Important: The basis for calculation is not simply the gross salary, but the tax-related total amount of income.

The Federal Fiscal Court, with its ruling of January 19, 2017, file reference VI R 75/14, decided that the reasonable burden must be calculated in stages. The respective higher percentage may only be applied to the portion of income that exceeds the corresponding limit.

Concrete numerical example:

A single person without children has a total income of 40,000 euros. In the same year, they incur 4,800 euros in self-paid and proven medical expenses. There are no reimbursements.

The reasonable burden is calculated in stages:

• 5 percent of 15,340 euros = 767 euros
• 6 percent of 24,660 euros = 1,479.60 euros
• Total reasonable burden = 2,246.60 euros

Of the medical expenses amounting to 4,800 euros, the remaining amount is:

4,800 euros − 2,246.60 euros = 2,553.40 euros

In this simplified example, these 2,553.40 euros can reduce the total amount of income.

Important: The person does not automatically receive 2,553.40 euros back from the tax office. The amount only reduces the tax base. The actual tax savings depend on the personal tax rate and the overall tax calculation.

Assuming a personal marginal tax rate of 30 percent, the tax relief would be roughly around 766 euros. This is merely a simplified illustration and not an individual tax calculation.

This leads to a common misunderstanding: many enter their costs in their tax return and wonder why the refund does not change or only changes slightly. The reason is often not the rejection of the expenses, but the individually calculated reasonable burden.

In practice, tax consideration often fails not because medical cannabis would be fundamentally excluded. Problems arise rather due to missing prescriptions, incomplete payment records, or an incomprehensible allocation of costs.

The Federal Fiscal Court confirmed in its ruling VIII R 52/13 that medical expenses for medicines, remedies, and aids can be rejected if the required proof by a medical or naturopathic prescription is missing. Formal documentation is therefore not merely a recommendation, but can be decisive for tax deductibility.

A realistic scenario:

A patient only partially collects her pharmacy invoices. For several payments, the associated prescriptions are missing. Furthermore, it is not clear from the documents which expenses were reimbursed by her insurance. The tax office then requests further evidence. If the patient cannot present the missing receipts and reimbursement statements, the affected costs may not be taken into account.

The problem in this case is not the therapy itself, but the lack of proof of the self-borne and medically induced expenses.

Underestimated hurdle: Plausibility

Even if a medical prescription is the central legal proof, the declared amounts must remain comprehensible overall.

This particularly concerns:

• the temporal assignment of prescriptions and pharmacy invoices
• the consistency between prescribed and invoiced products
• the demarcation from non-medical purchases
• the consideration of reimbursements
• conspicuous duplications or missing payment records

An unusually high sum is not automatically inadmissible. However, it can lead to the tax office requesting the relevant documents.

Frequent changes of doctors or different prescriptions also do not automatically lead to a rejection. The decisive factor is that the respective expenses can be clearly assigned to the existing medical prescriptions and invoices.

Anyone who wants to improve their chances of hassle-free processing should proceed systematically. The most important factor is not solely the amount of expenses, but their complete traceability.

This includes:

• complete collection of all medical prescriptions
  
• retention of all pharmacy invoices
• additional safeguarding of payment records
• documentation of reimbursements by health insurance companies or insurers
• clear temporal assignment of individual costs
• separate recording of medications, doctor's fees, and other expenses

A simple annual table with the following columns is helpful:

• Date
• Treating practice
• Date of prescription
• Pharmacy
• Invoice amount
• Reimbursement
• Actually self-borne amount

An additional detailed medical statement is not automatically the legally prescribed standard proof for ordinary medically prescribed medicines. The medical prescription is fundamentally the central document according to Section 64 of the Income Tax Implementing Ordinance (EStDV).

An supplementary statement can nevertheless be useful if not the medication itself, but unusual ancillary costs, devices, or other aids are being claimed. However, it does not replace either the prescription or the invoice.

The process is less complicated than many think – but requires careful preparation.

First, all documents are collected:

medical prescriptions, pharmacy receipts, proofs of payment, and reimbursement statements.

Subsequently, the costs are sorted by calendar year. The year in which the respective expense was actually paid is generally decisive.

After that, all reimbursements are deducted. Only the amount that was actually borne by oneself is stated in the tax return.

The remaining medical costs are entered in the income tax return under extraordinary burdens. There, they should be stated together with other self-borne medical costs for the respective year.

The receipts generally do not need to be submitted unsolicited with the tax return. According to the ELSTER guidelines, it is usually sufficient to keep them for possible inquiries. If the tax office requests the documents, they can be submitted later.

A brief, structured statement can simplify processing. For example, it could include:

• Total cost of therapy
• less reimbursements
• remaining personal contribution
• Number of attached or stored prescriptions
• Number of pharmacy receipts

The tax office then reviews the information and calculates the reasonable burden based on the individual income and family situation.

Inquiries are particularly possible for costs claimed for the first time, high costs, or costs not clearly allocated. Complete documentation does not prevent every inquiry, but it significantly facilitates answering them.

Deducting cannabis from taxes is generally possible if it is a medically prescribed treatment and the costs were borne by oneself.

The legal basis is provided by § 33 EStG and the proof regulations from § 64 EStDV. In addition, the case law of the Federal Fiscal Court confirms that medically prescribed medicines can be considered as extraordinary burdens if they are used due to an illness.

However, tax consideration is not a given. Crucial factors are:

• a valid medical prescription
• complete invoices and proofs of payment
• correct consideration of possible reimbursements
• a traceable allocation of all expenses
• exceeding the individual reasonable burden

The most important insight: Even if costs are recognized, this does not mean that the tax office will pay out the corresponding amount in full. Only the part above the reasonable burden reduces the tax assessment basis. The actual savings then depend on the personal tax rate.

Anyone who collects their documents in a structured way and knows the tax requirements significantly improves their chances of smooth recognition. Since every tax case is individual, this article does not replace personal advice from a tax advisor.