Private ruling: Medical expenses tax offset
Published: April 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do the payments you have made to a recovery facility in Country X qualify as eligible medical expenses for the purposes of the medical expenses tax offset? | A1: No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You have suffered from a permanent injury for an extended period of time. Whist receiving treatment in an Australian hospital, you were advised of a rehabilitation program available in Country X. This facility creates programs that are specific for the individual. You travelled to Country X for treatment. You have out-of-pocket medical expenses in relation to your treatment. You were not formally referred by your legally qualified medical practitioner to the recovery facility. You have received the net medical expenses tax offset in your relevant 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(4)

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 restricting who can claim and what medical expenses can be claimed. 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, regardless of whether they have receive an amount of the NMETO in the previous year. In addition, for the 2013-14 and 2014-15 income years, taxpayers will be able to claim the full range of medical expenses but only if they have received an amount of the NMETO in the previous year, i.e. in their 2012-13 income tax assessment 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 relevant income tax assessment, therefore you are entitled to make a NMETO claim in the subsequent financial year for the entire range of medical expenses that are eligible under section 159P of the ITAA 1936, not just those for disability aids, attendant care or aged care. In order to claim the offset the expenditure must fall within the definition of 'medical expenses' as contained in subsection 159P(4) of the ITAA 1936. Therapeutic treatment The only paragraph which may have application to your circumstances is paragraph (d) of the definition of medical expenses in subsection 159P(4) of the ITAA 1936 which includes payments made for therapeutic treatment administered by direction of a legally qualified medical practitioner. 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. The general concept of therapeutic treatment is concerned with healing or curing, rather than preventing the need for therapy. Therapeutic treatment involves the exercise of professional skill in the medical field in a way which normally involves the person administering the treatment using drugs or physical or mental processes of one kind or another for the purpose of curing or managing the disease or ailment. It was held in Case A53 69 ATC 313; 15 CTBR (NS) Case 30 that the mere suggestion or recommendation by a medical practitioner that the patient undergoes therapeutic treatment is not sufficient for the payment to qualify as a medical expense. The patient would have to be referred by a medical practitioner to a particular person for specific treatment. Although the treatment must be administered by direction of a legally qualified medical practitioner, the treatment need not be administered by such a practitioner. In your case, you travelled to the County X to seek therapeutic treatment not yet available in Australia. We acknowledge that participation in such a program is highly beneficial; however, it is a requirement of the legislation that the therapeutic treatment be administered by direction of a legally qualified medical practitioner for the payments to be an eligible medical expense for the purposes of the offset. As you were not formally referred by a legally qualified medical practitioner to the recovery facility for treatment, your payments do not qualify as an eligible medical expense for the purposes of the medical expenses tax offset under section 159P of the ITAA 1936.