Private ruling: Medical expenses tax offset
Date of advice: 29 July 2016
Published: September 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Do your out-of-pocket expenses in relation to your medical procedure qualify for inclusion in the calculation of the medical expenses tax offset? | A1: Yes.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are an amputee. You underwent medical surgery to insert a stem directly into your limb, which then allows for an external prosthetic limb to be attached. This procedure was performed in hospital. You have provided copies of cost estimates in relation to the surgery, which include payment to the surgeon, anaesthetist, and other specialists. You have out-off-pocket medical expenses in relation to this procedure. You have not received the net medical expenses tax offset in your 2012-13 or 2013-14 income tax assessments. Assumption(s) N/A

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 159P(1) | Income Tax Assessment Act 1936 Paragraph 159P(1B)(a) Further issues for you to consider | N/A | Anti-avoidance rules | N/A

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 income 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 not received an amount of the NMETO in your 2012-13 or 2013-14 income tax assessment so you are limited to claims relating to disability aids, attendant care or aged care only. Based on your circumstances paragraph 159P(1B)(a) of the ITAA 1936 would be the only provision where your expenses can be considered. This paragraph states:- For the 2013-14 to 2018-19 years of income, an amount that would otherwise be paid as medical expenses is treated as not being paid as medical expenses unless the payment relates to an aid for a person with a disability. In your case, you have undergone medical surgery. It is accepted that a prosthetic limb is a disability aid and that the surgery you have undertaken relates to an aid for a person with a disability. Therefore, you can include your out-of-pocket expenses in the calculation of the NMETO in the income years that the amounts are paid in.