Private ruling: Medical expenses tax offset
Published: February 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Do the following expenses qualify as eligible medical expenses for the purposes of the medical expenses tax offset for the financial year ended 30 June 2014? • x-rays • net (out of pocket) Medicare expenses • prescribed medications purchased from a pharmacy/chemist | A1: Yes. | Q2: Do the following expenses qualify as eligible medical expenses for the purposes of the medical expenses tax offset for the financial year ended 30 June 2014? • generator • trolley | A2: No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. Your spouse suffers from a medical condition. You have paid for the following out-of-pocket expenses in relation to yourself and your spouse: • Net Medicare expenses • X-rays • Medications prescribe by a legally qualified medical practitioner purchased from a pharmacy/chemist • Generator • Trolley 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 | Income Tax Assessment Act 1936 Subsection 159P(1) | Income Tax Assessment Act 1936 Subsection 159P(1A) | Income Tax Assessment Act 1936 Subsection 159P(1B) | Income Tax Assessment Act 1936 Subsection 159P(1C) | Income Tax Assessment Act 1936 Paragraph 159P(1C)(a) | Income Tax Assessment Act 1936 Subsection 159P(4) | Income Tax Assessment Act 1936 Paragraph 159P(4)(a) | Income Tax Assessment Act 1936 Paragraph 159P(4)(f)

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 in your 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. In order to claim the tax offset, the expenditure must fall within the definition of 'medical expenses' as contained in subsection 159P(4) of the ITAA 1936. Therefore, we have to determine whether the payments you have made qualify as medical expenses for the purposes of the medical expenses tax offset. | Detailed Reasoning - Payments made to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation: 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. The payments you have made for x-rays, prescribed medication and the net (out of pocket) Medicare expenses are payments made in respect of an illness and all fall within the above definition of 'medical expenses'. These payments are considered to be eligible medical expenses and the net amount can be included in your calculation of the medical expenses tax offset. | Detailed Reasoning - Payments in respect of a medical or surgical appliance prescribed by a legally qualified medical practitioner: Paragraph (f) of the definition of medical expenses in subsection 159P(4) of the ITAA 1936 includes payments made in respect of a medical or surgical appliance prescribed by a legally qualified medical practitioner. Taxation Ruling TR 93/34 Income tax: medical expense rebate - meaning of medical or surgical appliance explains the meaning of a 'medical or surgical appliance' as being an instrument, apparatus or device which is manufactured, distributed or generally recognised as an aid to the function or capacity of a person with a disability or an illness. TR 93/34 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 prescribed or used. It is not sufficient that a medical practitioner prescribes an appliance for medical or surgical ends. Even though your legally qualified medical practitioner has prescribed the use of the generator and trolley these items are not manufactured as, distributed as or generally recognised to be a medical or surgical appliance and are not considered to be an eligible medical expense. Both items are commercially available for various applications including the supply of electricity in the event of a power failure and the ease of mobility of the medical equipment and generator in this type of event. Therefore, the payments you have made for the generator and trolley do not qualify as medical expenses for the purposes of the medical expenses tax offset under section 159P of the ITAA 1936.