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

Ruling: Q1: Are your out-of-pocket costs associated with your cosmetic procedure considered to be eligible medical expenses for the purposes of the net medical expenses tax offset? | A1: No.

Relevant facts and circumstances: You have had a cosmetic procedure performed. The legally qualified medical practitioner who performed the procedure made a request to the Medicare claims review panel (MCRP) to consider a claim for a particular Medicare Benefits Schedule (MBS) item. A member of the MCRP assessed the clinical notes and photographs provided and determined that the descriptor for the item had not been demonstrated and the procedure would not attract a Medicare benefit. You have out-of-pocket expenses in relation to the procedure. You have received an amount of the net medical expenses tax offset in your 2012-13 income tax assessment.

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. 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). In your case, you have received an amount of the NMETO for the 2012-13 income tax assessment, 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 ineligible for the medical expenses tax offset. Paragraph (a) of the definition of ineligible 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 a cosmetic operation that is not a professional service for which a Medicare benefit is payable under Part II if the Health Insurance Act 1973 . The payments to the surgeon and hospital are payments to a 'legally qualified medical practitioner' or a 'public or private hospital'. As such the expenses will only be ineligible medical expenses if the service performed was a cosmetic operation. The procedure you had is considered to be a cosmetic procedure. In your case, we acknowledge that you did not undertake this procedure for cosmetic reasons. However this does not change the fact that the procedure alters a person's appearance and is regarded as a cosmetic operation. For this procedure to have been considered to be an eligible expense you would have had to have received a Medicare benefit in relation to the procedure. As your procedure did not attract a Medicare benefit it is considered that all amounts paid in relation to the procedure are ineligible medical expenses and you are not entitled to include your-of-pocket expenses when calculating your net medical expenses.