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

Ruling: Q1: Are you entitled to include the costs paid on behalf of a surrogate mother who is currently pregnant with your child when calculating the medical expenses tax offset? | A1: No.

Relevant facts and circumstances: You are considered to be infertile. You are currently undergoing the process of surrogacy. You have paid for all the costs for your surrogate's medical costs relating to the pregnancy. The child will be your dependant.

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

Reasons for decision: Summary: A medical expenses tax offset is available under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936), where you incur medical expenses in an income year for yourself or a dependant who is an Australian resident. The medical expense tax offset is only available if the amount of medical expenses (reduced by any entitlement to reimbursement from a health fund or government authority) exceeds $2,120 if you are a couple or family and your combined adjustable taxable income is $168,000 or below. The medical expenses tax offset is 20% of the amount by which the net medical expenses exceeds $2,120. If you are a couple or family and your combined adjustable taxable income exceeds $168,000, you can claim an offset of 10% for the eligible net medical expenses incurred in excess of $5000. Subsection 159P(1) states that to qualify for the tax offset, the medical expenses must be paid by a resident taxpayer in respect of themselves or a resident dependant. For these purposes 'dependant' is defined in subsection 159P(4) to mean: 1. The legal or de facto spouse of the taxpayer; or 2. A child of the taxpayer who is under 21 years of age; or 3. A person for whom the taxpayer is entitled to a dependant's rebate, or a child or student in respect of whom the taxpayer qualifies for a notional dependants rebate. In your case, although it is stated in Taxation Ruling IT 2359 that infertility is an illness within the ordinary meaning of the term and would qualify as a medical expense under subsection 159P(4) of the ITAA 1936, the expenses must be paid in respect of the taxpayer or a dependant of the taxpayer to qualify for the medical expenses tax offset. As the surrogate mother is not a dependant, you are unable to include the costs paid on their behalf when calculating your medical expenses tax offset.