Private ruling: Net medical expenses offset
Date of advice: 16 September 2016
Published: November 2016
Ruling period: Year ending 2016.
Date scheme commenced: 1 July 2015.

Ruling: Q1: Are you entitled to include out-of-pocket amounts paid in relation to speech therapy and occupational therapy in your calculation of the net medical expenses tax offset? | A1: No.

Relevant facts and circumstances: You have a dependent child who is diagnosed with disability. You have out-of-pocket expenses in relation to your child attending therapeutic treatments. You have received an amount of the net medical expenses tax offset in your notice of assessments for 2013, 2014 and 2015 income tax years.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P | Income Tax Assessment Act 1936 paragraph 159(1B)(a)

Reasons for decision: Summary: A medical expenses tax offset is available under subsection 159P(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer pays eligible medical expenses in an income year for themselves or a dependant who is an Australian resident. The medical expenses tax offset is only available if the amount of medical expenses, after being reduced by any entitlement to reimbursement from a health fund or government authority such as Medicare or the National Disability Insurance scheme, exceeds the threshold amount. This tax offset is income tested. The percentage of net medical expenses you can claim and the threshold amount is determined by your adjusted taxable income (ATI) and family status. It should also be noted that the threshold amount is subject to indexation and will change in future income years. The net medical expenses tax offset is being phased out. From 2015-16 until 2018-19, claims for this offset are restricted to net eligible expenses for disability aids, attendant care or aged care. Based on your circumstances paragraph 159P(1B)(a) of the ITAA 1936 would be the only provision where your expenses can be considered. This paragraph states:- For the 2013-14 to 2018-19 years of income, an amount that would otherwise be paid as medical expenses is treated as not being paid as medical expenses unless the payment relates to an aid for a person with a disability. Disability aids are items of property manufactured as, distributed as, or generally recognised to be, an aid to the function or capacity of a person with a disability but, generally will not include ordinary household or commercial appliances. Examples include wheelchairs, walking frames, hearing aids, car controls for the disabled and similar appliances. Speech and occupational therapy are forms of therapeutic treatment. Due to the legislative changes therapeutic treatments are now no longer an allowable medical expense as they do not fall within the definition of a disability aid. Therefore, you are not entitled to include your out-of-pocket expenses in relation to these therapies in your calculation of the net medical expenses tax offset. It should be noted that the Commissioner can only apply the law as set out in the tax legislation which is created by Federal Parliament, and by precedents set down by the Administrative Appeals Tribunal, the Federal Court and the High Court. Although we acknowledge your child's medical condition and the hardships you have subsequently endured, the legislation is very specific as to the circumstances under which a taxpayer is entitled to a medical expenses tax offset in the 2015-16 income year due to the legislative changes in relation to the phase out of the offset as mentioned above. The Commissioner is bound by the law and does not have the discretion to allow a claim if the expense does not fall within the legislation.