Private ruling: Medical expenses tax offset
Published: July 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Can the costs paid for the storage of cord blood stem cells be included in the calculation of your medical expenses for the purposes of the medical expenses tax offset? | A1: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are an Australian resident for tax purposes. You had a baby and have had the cord blood stem cells stored by a registered cord blood storage bank for future use in the treatment of diseases. The stem cells have not been used in the treatment of any illness, disease or disorder suffered by you or any of your family members. You have paid for this service. You are not entitled to any reimbursement for the costs from your health insurer or Medicare.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P

Reasons for decision: Summary: A medical expenses tax offset is available to a taxpayer under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer pays medical expenses in an income year for themselves or a dependant who is an Australian resident. The term 'medical expenses' is defined in subsection 159P(4) of the ITAA 1936. Paragraph (a) of the definition includes payments made to "a medically qualified practitioner in respect to 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 CJs approach in Trustees Executors and Agency Co Ltd v. Reilly [1941] VLR 110 pages 111, that: 'The words 'in respect of' are difficult of definition but they have the wildest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the words refer.' Accordingly, any payments 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 a payment for the storage of cord blood stem cells after the delivery of your child. The services provided are not in respect of an 'illness' as required by subsection 159P(4) of the ITAA 1936; nor is it an act 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. 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 you paid is not paid to a medical practitioner or hospital in respect of an illness or operation. Therefore, the expenses you have paid for the storage of cord blood stem cells do not qualify as medical expenses for the purposes of the medical expenses tax offset under section 159P of the ITAA 1936.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.