Private ruling: Tax offset - medical expense
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Does the expense you paid in relation to the collection, processing and storage of cord blood qualify as medical expenses for the purposes of the medical expenses tax offset? | A1: No

Relevant facts and circumstances: You incurred an expense when you entered into an arrangement with a company for the collection, processing and storage of cord blood. The cord blood was collected during the birth of your child by a legally qualified medical practitioner. You state that the cord blood is collected for storage in case there is a need to use it in the future to treat a range of medical conditions. The cord blood has not been used in the treatment of any illness, disease or disorder suffered by you or any of your family members.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 159P | Income Tax Assessment Act 1936 subsection 159P(3A) | Income Tax Assessment Act 1936 subsection 159P(4)

Reasons for decision: Summary: Subsection 159P(3A) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a tax offset is allowable to a taxpayer whose net medical expenses in the year of income exceed a threshold dollar amount. The medical expenses must be paid by you in respect of you or your dependant. The term 'medical expenses' is defined in section 159P(4) of the ITAA 1936. Paragraph (a) of the definition includes payments made to "a legally qualified medical practitioner ... in respect of an illness or operation". In Case Q21 83 ATC 77; (1983) 26 CTBR (NS) Case 85 Mr Hogan, in the course of his decision, 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.' Accordingly, any payment to a legally qualified medical practitioner or hospital in connection with an illness or an operation would satisfy the requirement that the payment is in respect of an illness or operation. 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). Paragraph 5 of IT 2359 also states that 'In its ordinary meaning the term "operation" refers to an act performed by hand and/or instrument to some part of the body to remedy deformity, injury, disease, pain etc.' You made the payment to the company for the collection of blood samples by your medical practitioner after the delivery of your child. This enabled the company to store the cord blood samples for long term storage for the potential future use in the treatment of diseases. The services provided by the hospital, the medical practitioner and the company are not in respect of an 'illness' as required by section 159P(4) of the ITAA 1936. The act of drawing blood from the umbilical cord either from a placenta that has been delivered or a placenta that is attached to the uterus is not caught by the ordinary meaning of 'operation'. The act is not in respect of remedying a deformity, disease, pain etc and therefore would not satisfy the requirement of paragraph 159P(4)(a) of the ITAA 1936. Accordingly, the amount paid by you is not paid to a medical practitioner or a hospital in respect of an illness or operation. Therefore, payments made by you for the collection, processing and storage of cord blood samples do not qualify as medical expenses for the purposes of the medical expenses tax offset under section 159P of the ITAA 1936.