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

Ruling: Q2: Can the costs of modifying your house to include an additional bedroom, toilet and shower and the costs for a refrigerator, air conditioner, cooking utensils, cooking appliances, computer, audio/visual equipment, an elevating bed and an elevating chair be included in a calculation for the medical expenses tax offset? | A1: No. | Q3: Can the costs of three bathroom grab rails, an elevating toilet seat, a wheelchair and a wheelchair cushion be included in a calculation for the medical expenses tax offset? | A2: Yes.

Relevant facts and circumstances: You are an Australian resident for taxation purposes. Your spouse has an illness and is now confined to a wheelchair. To enable your spouse to return to your home which is highset, you have built a bedroom and toilet/shower with wheelchair access under the house. This includes furnishings, appliances and air-conditioning. You have purchased a wheelchair, a wheelchair cushion, an elevating bed, an elevating chair and an elevating toilet seat. You have provided supporting letters from your spouse's oncologists and general practitioner.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1936 Section 159P

Reasons for decision: Detailed Reasoning - Deductions: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. | Detailed Reasoning - Modifications to your home: You have incurred expenses in modifying your family home to better meet the medical needs of your spouse in terms of her mobility and consequent ability to return to your home. These expenses have no direct connection to the gaining or producing of assessable income. The purpose of the expense is more directly related to your spouse's wellbeing. Because of this, these expenses are considered to be private in nature. There is insufficient connection to the gaining or production of assessable income as the expenditure is too remote. Because the expenses for the modification of your home are private in nature and did not lead to the gaining or producing of assessable income, they are not deductible under section 8-1 of the ITAA 1997. | Detailed Reasoning - Medical expenses: A deduction for medical expenses is not available under section 8-1 of the ITAA 1997. Medical expenses have no direct connection to the gaining or producing of assessable income. The purpose of the expense is more directly related to your spouse's health. There is insufficient connection to the gaining or production of assessable income as the expenditure is too remote. In addition, medical expenses can be characterised as being of a private nature and are therefore also excluded on that ground. Consequently, you are not entitled to a deduction for the medical expenses incurred in the treatment of your spouse's medical condition under section 8-1 of the ITAA 1997. | Detailed Reasoning - Medical expenses tax offset: 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, to the extent that they are not reimbursed, or are eligible to be reimbursed, from Medicare and private health insurers. 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 will now depend on your level of income. You will be able to claim an offset of 10% of your net medical expenses over $5,000 if you have an adjusted taxable income (ATI) above: · $84,000 if you are single, or · $168,000 if you are a couple or family. The family threshold will increase by $1,500 for each dependent child after the first. If your ATI is below these income thresholds, you are not affected by this change and can continue to claim an offset of 20% of your net medical expenses over the indexed threshold amount. For the 2013 income year the threshold amount is $2,120. | Detailed Reasoning - Medical or surgical appliances: Paragraph 159P(4)(f) of the ITAA 1936 defines medical expenses as payments made in respect of a medical or surgical appliance prescribed by a legally qualified medical practitioner. Taxation Ruling TR 93/34 explains the meaning of a medical or surgical appliance for the purposes of the medical expenses tax offset. The ruling states that a medical or surgical appliance is an instrument, apparatus or device which is manufactured as, or distributed as, or generally recognised to be an aid to the function or capacity of a person with a disability or an illness. It also provides that generally, a household or commercial appliance is not a medical or surgical appliance and that we need to look at the character of the appliance, not the purpose for which it is proposed or used. To be an aid to function or capacity, the appliance must help the person with the illness or disability to perform the activities of daily living. An appliance that merely has a therapeutic purpose, such as relieving, healing or preventing a medical condition, is not considered to be a medical or surgical appliance within the meaning of paragraph 159P(4)(f) of the ITAA 1936. A list of what is considered to be a medical or surgical appliance can be found at paragraph nine of TR 93/34. | Detailed Reasoning - Home modifications: The costs that you have incurred in modifying your home to accommodate your spouse's needs do not qualify for the medical expenses tax offset as they are not considered to be medical or surgical appliances because they are not manufactured as, or distributed as, or generally recognised to be an aid to the function or capacity of a person with a disability or illness. The cost of modification and the additional items you purchased have a conventional household use. They are designed for use by the general population rather than specifically as an aid for use by persons suffering a disability or illness. Therefore, you will not be able to include any of the costs associated with the addition of the ground floor modifications to your home for the purposes of the medical expenses tax offset. Although the alterations to your home will facilitate the use of a wheelchair at home, the expenditure for these modifications does not fall within the definition of 'medical expenses' for the purpose of the medical expenses tax offset. | Detailed Reasoning - Elevating bed and elevating chair: In considering whether an item is a medical or surgical appliance, it is the character of the item which is determinative, not the purpose for which it is prescribed or used. While it is acknowledged that the elevating bed and elevating chair may aid the function of a person with a disability or illness, the items themselves retain their domestic function of being a place to sleep/sit in a household setting. Their character remains in essence pieces of household furniture, and they are not medical or surgical appliances. Although the lift chair and elevating bed may be used by persons with a disability or illness, and may improve your spouse's mobility and general health, they are not generally distributed as, or generally recognised to be, an aid to the function or capacity of a person with a disability or an illness. As the lift chair and elevating bed are not medical or surgical appliances the costs that you incurred to purchase them do not qualify as medical expenses under subsection 159P(4) of the ITAA 1936. You are therefore not entitled to a medical expenses tax offset for this expenditure. | Detailed Reasoning - Wheelchair and wheelchair cushion: The wheelchair and wheelchair cushion have been manufactured, are sold specifically and are generally recognised as an aid to those people who have mobility impairment. Their character is to aid a mobility impaired person. Taxation Ruling TR 93/34 also provides that wheelchairs are 'medical or surgical appliances' for the purposes of the medical expenses rebate. Accordingly, the expenses incurred in purchasing the wheelchair and wheelchair cushion are considered a medical expense for the purposes of calculating the medical expenses tax offset. | Detailed Reasoning - Elevating toilet seat and bathroom grab rails.: The elevating toilet seat and bathroom grab rails are specifically designed for persons with an illness or disability and are therefore medical appliances. The items are recognised as aids to the function or capacity of a person with a disability or illness. Accordingly, they qualify as medical or surgical appliances and are considered a medical appliance for the purposes of calculating the medical expenses tax offset.

Question 1: Are you eligible for a deduction for the costs to modify your house to include an additional bedroom, toilet and shower and for a refrigerator, air conditioner, cooking utensils, cooking appliances, computer, audio/visual equipment, three bathroom grab rails, an elevating bed, an elevating chair, an elevating toilet seat, a wheelchair and a wheelchair cushion?