Private ruling: Tax offsets - medical expenses
Published: September 2013
Ruling period: Financial year ended 30 June 2010, and | Financial year ended 30 June 2011.
Date scheme commenced: 1 July 2009.

Ruling: Q1: Are you entitled to claim a medical expense tax offset under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) for pathology test expenses for the financial years ended 30 June 2010 and 2011? | A1: Yes. | Q2: Are you entitled to claim a medical expense tax offset under section 159P of the ITAA 1936 for dental expenses for the financial years ended 30 June 2010 and 2011? | A2: Yes. | Q3: Are you entitled to claim a medical expense tax offset under section 159P of the ITAA 1936 for a portion of medication/compound expenses for the financial years ended 30 June 2010 and 2011? | A3: Yes. | Q4: Are you entitled to claim a medical expense offset under section 159P of the ITAA 1936 for therapeutic treatment expenses for the financial years ended 30 June 2010 and 2011? | A4: No.

Relevant facts and circumstances: You and your spouse are Australian residents for taxation purposes. You and your spouse have had ongoing chronic health issues for which you have undergone various medical treatments under the direction of your doctor. You and your spouse have also undergone various treatments for the same ongoing chronic health issues under the direction of your naturopath. Your naturopath is not also a qualified medical practitioner. Following the limited success of these treatments, your doctor suggested trialling a therapeutic treatment, but did not formally refer you or your spouse to a specific practitioner. You made payments for therapeutic treatment for you and your spouse in the financial years ended 30 June 2010 and 2011. You made payments to your dentist for professional dental services for you and your spouse in the financial years ended 30 June 2010 and 2011. You made payments for pathology tests ordered by your doctor for you and your spouse in the financial years ended 30 June and 2011. You made payments for pathology tests ordered by your naturopath for you and your spouse in the financial years ended 30 June 2010 and 2011. Pathology tests ordered by your naturopath were similar to those ordered by your doctor. All pathology tests were undertaken at a registered pathology unit by the unit's employees, being legally qualified medical practitioners and/or nurses. The purpose of these pathology tests were to assist in diagnosing the underlying causes of ongoing health issues. Pathology tests identified various illnesses of both you and your spouse. The results of pathology tests ordered by your naturopath were reviewed by your doctor. Your doctor used these results to inform and guide ongoing treatment of you and your spouse, including prescriptions for various medications/compounds. Your doctor and your naturopath prescribed various medications/compounds based on the results of pathology tests to treat you and your spouse's illnesses. You made payments for medications/compounds prescribed by your medical practitioner for you and your spouse in the financial years ended 30 June 2010 and 2011. You made payments for medications/compounds prescribed by your naturopath for you and your spouse in the financial years ended 30 June 2010 and 2011. All compound products purchased required prescriptions to access. Payments for compounds were made to: · registered chemists · health shops, and · other retail distributors.

Relevant legislative provisions: Income Tax Assessment Act 1936 s ubsection 159P(1). | Income Tax Assessment Act 1936 s ubsection 159P(4). | Income Tax Assessment Act 1936 section 159P.

Reasons for decision: Summary: Section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) provides for a rebate of tax (tax offset) to a taxpayer whose rebatable medical expenses in the year of income exceed a threshold dollar amount. The threshold amounts are $1,500 for the 2009-10 financial year and $2,000 for the 2010-11 financial year. The amount of the rebate is equal to 20% of the expenditure that exceeds the threshold amount. The medical expenses must be paid by you in respect of yourself or your dependant. A dependent includes your spouse. Subsection 159P(1) of the ITAA 1936 states that rebatable expenses are amounts paid by you for medical expenses in respect of yourself or your dependant who is a resident, less amounts you are entitled to be paid or that are paid to you or anyone else in respect of those medical expenses by a government or public authority or by a society, association or fund. Subsection 159P(4) of the ITAA 1936 defines 'medical expenses' to include payments: · to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation · to a legally qualified dentist for dental services or treatment or the supply, alteration or repair of artificial teeth · to a registered dental mechanic for the supply, alteration or repair of artificial teeth · for therapeutic treatment administered by direction of a legally qualified medical practitioner… Payments made to an employer of persons identified in subsection 159P(4) of the ITAA 1936 shall be taken to be a payment made to that person and included as medical expenses. However, payments made to entities not identified in subsection 159P(4) of the ITAA 1936, do not qualify as medical expenses for the purpose of the rebate. Taxation Ruling IT 2359 contains the Commissioner's views as to the meaning of 'illness' or 'operation'. The terms are not defined in the income tax law and are to be given their ordinary meaning. The term 'illness' within the context of section 159P of the ITAA 1936 requires an existing condition that is a deviation from the normal healthy state (paragraph 5 of IT 2359). In Case Q21 83 ATC 77; (1983) 26 CTBR (NS) Case 85, Mr Hogan discussed the scope of the phrase 'in respect of' and endorsed Mann CJ's approach in Trustees Executors and Agency Co Ltd v. Reilly [1941] VLR 110 at page 111, that: 'The words "in respect of" are difficult of definition but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the words refer.' You and your spouse have had ongoing health issues for which you have undergone various medical treatments under the direction of your doctor, and more recently, your naturopath. We consider these ongoing health issues of both you and your spouse are an illness as described in IT 2359. | Detailed Reasoning - Pathology test expenses: Pathology tests undertaken at the direction of your doctor are considered to be in respect of your and your spouse's illnesses. Pathology tests undertaken at the direction of your naturopath were also in relation to the same illnesses identified by your doctor. You made payments to employers of and/or legally qualified medical practitioners and/or nurses for pathology tests for both yourself and your spouse in respect of an illness. Accordingly, these payments for pathology tests qualify as medical expenses that may be included in your calculation of the medical tax offset. | Detailed Reasoning - Dental expenses: You made payments to the employer of and/or the legally qualified dentist for general dental services/treatments for you and your spouse. Accordingly, these payments qualify as medical expenses that may be included in your calculation of the medical tax offset. | Detailed Reasoning - Chemist expenses: Taxation Ruling IT 2146 provides the Commissioner's view that items purchased from chemists under prescriptions from legally qualified medical practitioners would normally qualify as being in respect of an illness if they qualified for pharmaceutical benefits. They may also qualify in other circumstances. We consider products you purchased from a chemist under prescription from your doctor qualify as medical expenses. However, you have stated that your naturopath is not also a legally qualified medical practitioner. Therefore, any food substitutes or special dietary foods purchased from a legally qualified chemist under the direction of your naturopath would have to be in respect of an illness or operation to qualify as medical expenses. Based on your facts and circumstances, we consider that products purchased under the direction of your naturopath were in respect of an illness, being the same illness previously diagnosed by your doctor and confirmed by pathology tests. Accordingly, payments you made to a chemist in respect of an illness qualify as medical expenses that may be included in your calculation of the medical tax offset. However, payments made to entities not identified in subsection 159P(4) of the ITAA 1936, do not qualify as medical expenses for the purpose of the rebate. Accordingly, payments you made to health shops and other retail distributors do not qualify as medical expenses. | Detailed Reasoning - Therapeutic treatment: For therapeutic treatment expenses to qualify as medical expenses, the treatment must be at the direction of a legally qualified medical practitioner. It was held in Case A53 69 ATC 313; (1969) 15 CTBR (NS) Case 30 that the mere suggestion or recommendation by a medical practitioner that the patient undergoes therapeutic treatment is not sufficient for the payment to qualify as medical expenses. The patient would have to be referred by a medical practitioner to a particular person for specific treatment. Accordingly, payments made by you for therapeutic treatment do not qualify as medical expenses as neither you nor your spouse were referred by your doctor to a particular person to undergo the therapy. These payments cannot be included in your calculation of the medical tax offset.