Private ruling: Medicare repayment
Published: January 2014
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for the payments made to Medicare from your compensation payout? | A1: No


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 59-30

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowable where the losses or outgoings are of a capital, private or domestic nature or another provision prevents the deduction. In your case you have accepted a settlement agreement with your employer and have received a compensation payment which has been paid by your employer's insurer. As part of the compensation payment the insurer was required to deduct xx% from the settlement proceeds and send this amount directly to Medicare. You are not entitled to a deduction for the payment made to Medicare. This is because you have been reimbursed by the insurer for the medical expenses you incurred. The amount in question was forwarded to Medicare to repay the amounts that had previously been paid to you following your injury. In effect your medical expenses have been paid by the insurer. Therefore you are not entitled to a deduction for the amount repaid to Medicare.

Relevant facts: The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | · the application for private ruling; | · the Deed of Settlement and Release; | · Copies of medical claims amounts | You received a compensation payment for a work-related injury. | You originally paid for your own medical expenses, but were reimbursed by the insurer. | As a condition of the compensation settlement you accepted that the insurer forward xx % of the settlement to you and pay the other xx% to the Health Insurance Commission as a deposit for monies which may be owing to Medicare.