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

Ruling: Q1: Are you entitled to claim a net medical expenses tax offset in the 2013-14 financial year? | A1: No

Relevant facts and circumstances: You are an Australian resident for tax purposes. You were diagnosed with a degenerative disease. You became intolerant to your present aids, necessitating surgery to restore and preserve functional vision. You explored options for this surgery in both Australia and in Country Y, opting for surgery in the Country Y as post-operative recuperation time was only one week, rather than three months if you had proceeded with the operation in Australia. The procedure involved the placement of specific implants after being anaesthetised. You incurred costs in relation to the medical diagnosis, overseas travel and accommodation, visa and travel insurance, as well as the costs of the medical procedure itself. You did not receive any net medical expenses tax offset in your relevant income tax assessment. You contend that the procedure meet the conditions which allow you to claim a tax offset for the year ending 30 June 2014.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 159P(1) | Income Tax Assessment Act 1936 Paragraph 159P(1B)(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 dependent 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 did not receive an amount of the NMETO in your 2013-14 income tax assessment so you are limited to claims relating to disability aids, attendant care or aged care only. | Detailed Reasoning - Disability aids: 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. A disability aid would be considered to be an 'aid to function or capacity' if it helps a person in performing activities of daily living or provides assistance to alleviate the effect of the disability. | Detailed Reasoning - Disability: As it is not currently defined in tax laws, we refer to the definition published by the Australian Institute of Health and Welfare, which is: A disability is defined as 'one or more of 17 limitations, restrictions or impairments which have lasted or are likely to last, for a period of six months or more and which restrict a person's everyday activities'. They include: • Loss of sight (not corrected by glasses or contact lenses)…. The ATO accepts the interpretation of disability and disability aids as described in the information above. Thus, for example, the cost of prescription glasses is not considered to be a disability aid. With the exception of loss of sight, deteriorating eyesight which requires the use of prescription glasses or contact lenses is not considered to be a disability for the purposes of the NMETO. In your case, you have incurred costs in relation to the procedure to restore and preserve your functional vision after you became intolerant to the wearing a medical aid which met that same purpose. Your diagnosed condition and subsequent restoration procedure, is not considered to be a disability or disability aid for the purposes of the medical expense tax offset. | Detailed Reasoning - Costs of travel and accommodation: All travel and accommodation expenses in relation to medical treatment are generally considered to be of a private nature and, as such, are not an allowable expense. Accordingly, you are not entitled to claim the costs for your procedures or any of the associated travel, insurance or accommodation expenses as a medical expense tax offset.