Private ruling: Medical expenses tax offset - overseas treatment
Published: June 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Do the out-of-pocket medical expenses associated with your dependant being hospitalised and receiving treatment whist overseas qualify as eligible medical expenses 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 out-of-pocket medical expenses in relation to an Australian resident dependant for treatment received in an overseas hospital. The treatment was prescribed and administered by a legally qualified medical practitioner and you have provided copies of paid invoices in relation to their hospitalisation. The invoices are shown in a foreign currency. You have converted the foreign amount by the exchange rate prevailing at the time of the transaction and the total is in excess of the current upper-limit threshold amount. You received a net medical expenses tax offset in your income tax assessment for the year ended 30 June 2013. A benefit was not payable in relation to the overseas medical expenses by either Medicare or your private health fund. You have not included expenses that are incidental to the treatment, such as airfares, taxi fares, telephone calls, laundry and your accommodation costs.

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

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. The amount of net medical expenses tax offset you can claim now depends on your level of income as the rebate is now income tested. This not only affects the threshold amount but also the percentage of the rebate you can claim. It should also be noted that the threshold amount is subject to indexation and will change in future income years. It should be noted that the net medical expenses tax offset (NMETO) is being phased out between the 2013-14 and 2018-19 financial years. Transitional arrangements will allow taxpayers to claim the offset from the 2013-14 financial year until the end of the 2018-19 financial year, but only for those medical expenses relating to disability aids, attendant care or aged care. In addition, for the 2013-14 financial year and 2014-15 financial year, 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 financial year (or in both 2012-13 and 2013-14 in respect to claims in the 2014-15 financial year). In your case, you have received an amount of the NMETO for the 2012-13 financial year, therefore you are entitled to make a NMETO claim in the 2013-14 financial year for the entire range of medical expenses that are eligible under section 159P, not just those for disability aids, attendant care or aged care. Subsection 159P(4) of the ITAA 1936 defines medical expenses which are eligible for the 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. However, it is not necessary that the payments be made to a resident of Australia or that they are paid in Australia. Therefore, medical expenses paid during an overseas trip may qualify for the tax offset. In your case, you have out-of-pocket medical expenses in relation to your dependant's treatment whilst overseas. The amounts paid to the hospital are considered to be eligible medical expenses for medical expenses tax offset purposes. Accordingly, you are entitled to include the costs in your calculation of the medical expenses tax offset.