Private ruling: Medical expenses tax offset
Published: December 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Are the expenses you paid for on behalf of an donor as part of your in vitro fertilisation (IVF) treatment a medical expense for the purposes of the medical expenses tax offset? | A1: Yes.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You have been diagnosed as requiring fertility treatment. You commenced several rounds of IVF treatment. Both rounds of treatment involved the use of a donor. You were implanted, a surrogate was not used. You were responsible for the expenses of the donor in respect of the IVF treatment. The medication that was required by the donor was purchased through the IVF clinic. The treatment was delivered by a legally qualified medical practitioner. All payments have been made to either a legally qualified medical practitioner or hospital. You have not made a claim for the net medical expenses tax offset in either the 2012-13 or 2013-14 financial years.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P | Income Tax Assessment Act 1936 Subsection 159(1) | Income Tax Assessment Act 1936 Subsection 159P(1C) | Income Tax Assessment Act 1936 Paragraph 159P(1C)(a) | Income Tax Assessment Act 1936 Paragraph 159P(1C)(b) | Income Tax Assessment Act 1936 Subsection 159P(4)

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, 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 (NMETO) is being phased out between the 2013-14 and 2018-19 financial years and eligibility for this offset has changed. Transitional arrangements will allow taxpayers to claim the offset from the 2013-14 income year until the end of the 2018-19 income year, but only for those medical expenses relating to disability aids, attendant care or aged care. In addition, for the 2013-14 and 2014-15 income years, taxpayers will be eligible to claim the full range of medical expenses (as defined currently) but only if they have received an amount of the net medical expenses tax offset in the previous income year (or in both 2012-13 and 2013-14 in respect to claims in the 2014-15 income year). | Detailed Reasoning - IVF procedures: Subsection 159P(4) of the ITAA 1936 defines medical expenses which are eligible for the net medical expenses tax offset. Paragraph (a) of the definition of medical expenses in subsection 159P(4) of the ITAA 1936 includes payments made to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation. Taxation Ruling IT 2359 Income tax: medical expenses - in vitro fertilization states that infertility is an illness within the ordinary meaning of the term and payments made to a legally qualified medical practitioner or hospital for treatment under an IVF program qualify as medical expenses. In your case, you have out-of-pocket expenses which were paid in relation to a donor as part of your IVF treatment. The procedures were undertaken by a legally qualified medical practitioner and the medication required by the donor was purchased from the IVF clinic. If donors X are implanted into a surrogate then the IVF treatment is for the surrogate to become pregnant. In that situation the IVF treatment expenses do not qualify for the NMETO as they are not paid by a taxpayer for treatment to themselves or a dependant; rather the treatment is for the surrogate. In your case, however, a surrogate was not used. The donor were utilized to enable you to become pregnant. Although the medical expenses paid in order to obtain the donor X were made on behalf of a person other than yourself or your dependant, these expenses were part of your treatment to overcome infertility. Therefore it is accepted that these medical expenses were paid in respect of yourself. Consequently, the payments you have made in respect of the donor qualify as eligible medical expenses within the meaning of section 159P if the ITAA 1936 and you are entitled to include your out-of-pocket costs in your calculation of the medical expenses tax offset in the 2012-13 financial year. However, due to the transitional arrangements you will need to receive an amount of the NMETO in your income tax assessment for the year ended 30 June 2013 to be eligible to claim your out-of-pocket IVF expenses in the 2013-14 financial year.