Private ruling: Medical expenses tax offset
Published: May 2013
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2011

Ruling: Q1: Do expenses incurred in acquiring a specialised self-drive vehicle qualify as eligible medical expenses for the purposes of calculating the medical expenses tax offset? | A1: No. | Q2: If the combined amount of the expenditure on the vehicle and the self-drive conversion package is not an eligible expense, does the full expenditure incurred in acquiring and installing the self-drive package qualify as an eligible medical expense for the purposes of calculating the medical expense tax offset? | A2: No. | Q3: If the full expenditure on the complete self-drive conversion package is not an eligible medical expense, do expenses and installing certain components of the self-drive package qualify as eligible medical expenses for the purposes of calculating the medical expenses tax offset? | A3: Yes.

Relevant facts and circumstances: You are confined to a wheelchair. You have been totally dependant upon carers to drive you about for all aspects of daily living. Your doctor and occupational therapist, who are responsible for your ongoing medical treatment, recommended the self-drive apparatus be purchased to enable you to overcome your mobility difficulties and allow you a high degree of independence. You purchased a van and modified it with a self-drive conversion package and an electronics package. The self-drive conversion package contained the following features: · premium lowered floor offering easy access through both side sliding doors · extra wide sliding door opening and power fold out ramp with remote controls · quality ride, automatic levelling, air suspension with kneeling feature · removable and swappable front driver and passenger seats · spare wheel mounted in rear storage locker · slip resistant vinyl flooring · wheelchair restraint tracking for both front passenger and mid position behind driver · electric front restraints in front passenger seat position and including rear restraints · electric park brake. The electronics package was designed specifically for you. The invoice contains the following: · supply and install digital electro-mechanical steering system and digital electro-mechanical joystick (xy axis) operated brake/accelerator system · custom mounting systems · supply and install electro-mechanical gear shift control system · supply an install electro-mechanical auto docking station · supply and install electronic self cancelling indicator sequential wiper operating system · supply and install Australian Design Rules compliant swing away auto head rest system · engineers report · Road Transport Authority adjustment of records/blue slip · freight charges · Customs fees/duties · final fit out. The electronics package enables you to drive and control your motor vehicle by using your hands and head movements. The converted motor vehicle is suited to you and cannot be easily driven by another person. The combined purpose and effect of purchasing and modifying the motor vehicle was to acquire an apparatus to enable you to overcome aspects of your physical disability that had previously prevented you from driving a passenger vehicle. Through your independent use of this motor vehicle you are now able to be less of a burden on your support group. You received the following towards the purchase and modification of the motor vehicle from: · a contributions from a charity, and · a government reimbursement grant for the cost of the electronics package.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P Income Tax Assessment Act 1936 Subsection 159P(4)

Reasons for decision: Summary: The cost of purchasing and installing the power fold out ramp, electronic park brake and the electronic controls qualify as medical expenses for the purposes of paragraph 159P(4)(f) of the Income Tax Assessment Act 1936 (ITAA 1936) as they are either medical or surgical appliances or in respect of medical or surgical appliances. The remaining expenses do not qualify as medical expenses as they are not in respect of medical or surgical appliances. | Detailed Reasoning - Detailed reasoning: Section 159P of the ITAA 1936 provides an offset to a taxpayer whose net medical expenses in the year of income exceed the threshold. For the year ended 30 June 2010, the amount of the offset is 20% of the excess over $1,500. Net medical expenses are total medical expenses less any amount paid or payable by Medicare, a private health fund, a government or public authority, or by a society, association or fund in relation to the medical expenses. To qualify for the tax offset the payments must fall within the definition of 'medical expenses' contained within subsection 159P(4) of the ITAA 1936. Medical expenses are defined in subsection 159P(4) as including payment in respect of a medical or surgical appliance (not otherwise specified in other paragraphs of the definition) prescribed by a legally qualified medical practitioner. Taxation Ruling TR 93/34 sets out the Commissioner's views as to what constitutes a 'medical or surgical appliance' for the purposes of paragraph 159P(4)(f) of the ITAA 1936. Paragraph 3 of TR 93/34 states that: A medical or surgical appliance for the purposes of paragraph (f) of the definition of 'medical expenses' in subsection 159P(4) [of ITAA 1936] is an instrument, apparatus or device which is: (a) manufactured as; or (b) distributed as; or (c) generally recognised to be an aid to the function or capacity of a person with a disability or illness. This definition looks to the character of the appliance, not the purpose for which it is prescribed or used. TR 93/34 states an item must be an aid to function or capacity of a person with a disability or illness for it to be a medical or surgical appliance. An appliance is an aid to function or capacity of a person with a disability or an illness if it assists or improves the person's abilities in performing activities of daily living. Generally, a household or commercial appliance is not a medical or surgical appliance and we need to look at the character of the appliance, not the purpose for what it is prescribed or used. It is insufficient for an item to qualify as a medical or surgical appliance by reason that a medical practitioner prescribed or recommended it on medical grounds. However modifications to items sold commercially for general purposes that are an aid to function or capacity may fall within the ambit of medical or surgical appliances for the purposes of the medical expenses tax offset. The leading case of what constitutes a medical or surgical appliance is FC of T v. Ildes 19 ATR 952; 88 ATC 4214 ( Ildes' Case ), where Spender J stated that: ... the essential ingredient of a medical appliance for the purposes of s. 159P(4)(f) is that it constitutes an aid to function or capacity. The mere fact that an article has a therapeutic purpose does not constitute the article a medical or surgical appliance within the meaning of the section. Spender J also referred to the analysis in Case P29 14 TBRD 143; (1963) 11 CTBR (NS) Case 63 ( Case P29) stating the analysis contained in the case was sound. In Case P29 the Board of Review No.2 concluded that an air-conditioning unit used to relieve bronchial asthma was not a medical or surgical appliance for the purpose of the then relevant section of the Act. The Board said: ... [t]hat the character of the appliance was not altered by either the recommendation of the physician or the taxpayer's purpose in purchasing and using it ...The section requires the appliance to be a medical or surgical appliance, that is an appliance which is manufactured or distributed as or generally recognised to be an article or thing intended to achieve a medical or surgical end. The principles established in Ildes' Case have been adopted in subsequent decisions. The Courts and Tribunals have consistently held that a medical or surgical appliance should be an aid to function or capacity. This view has been applied in other cases to determine whether an appliance or apparatus that assists the mobility of a wheelchair bound person is a medical or surgical appliance for the purposes of the medical expenses tax offset. In Case D37 72 ATC 210; Case 7 (1972) 18 CTBR (NS) 33 ( Case D37 the taxpayer's spouse was paralysed from the waist down. She was able to walk with the aid of a stick. However she could not negotiate the steps of the two storey house in which she resided. The taxpayer installed a chair lift to enable her to move from floor to floor. The chair lift was electrically operated and consisted of a padded chair that travelled on a mono-rail fixed to the stairway. The Board of Review held that the lift was a medical or surgical appliance and it stated that: it can be said that the lift was specifically designed to replace or alleviate an absent or impaired bodily function or medical defect and the use of which, in the commercial sense, is limited in normal circumstances to such replacement or alleviation ... In appearance and function the chair lift in the instant case may be equated to an invalid chair which is normally designed to enable the patient to travel in a horizontal plane. Here the chair was specifically designed for the vertical. We agree with the Commissioner that an invalid chair satisfies the description of a medical or surgical appliance for the purpose of the statutory definition and would accord like treatment to the appliance with which we are presently concerned and which has aptly been described as a stairchair. Application to your circumstances Full cost of van and modifications as a medical expense On the recommendation of your occupational therapist you have purchased a van and modified it to suit your specific physical abilities. The modifications included the installation of an electronics package. Your modified van allows you to travel independently in the same manner as a person without disabilities. In this sense, the modified van can be considered to be an aid to the function or capacity for a person with a disability. However, an appliance requires something more than just being an aid to function or capacity for it to be considered a medical or surgical appliance for medical expenses tax offset purposes. As discussed in paragraph 3 of TR 93/34 the appliance is required to have been manufactured, distributed or generally recognised as an aid to the function or capacity of a person with a disability or illness. Where the appliance is not specifically manufactured or distributed as an aid to the function or capacity of a person with a disability or illness, any modifications performed to make the appliance suitable for use by a person with a disability or illness does not change the character of the original appliance ( Illdes' Case ). A motor vehicle is not generally manufactured or distributed as an aid to the function of a person with a disability or illness. The van you purchased maintains its character as a motor vehicle generally used for household or commercial purposes. The modifications to the van which allow you to drive independently do not change the character of the van as a whole. Therefore the full cost of purchasing and modifying the van to allow you to independently drive it do not qualify as a medical expense because the van retains its character as a passenger vehicle. Conversion package As discussed above, your van is not a medical or surgical appliance. However, all or part of the cost of the modifications may fall within the ambit of medical or surgical appliances for the purposes of the medical expenses tax offset. The conversion package involved modifications to the van to allow you to drive and the installation of remote controlled power fold out ramp and electric park brake. Whilst the package as a whole acts to provide you with access to, and the ability to drive the van, the component parts of the package will be examined separately. (a) Power fold out ramp ATO Interpretative Decision ATO ID 2006/250 examines whether the cost of purchasing and installing a fold down ramp to provide wheelchair access to a car qualifies as a medical expense. The ATO ID states the fold down ramp is considered to be an appliance as it has been manufactured and sold as an appliance which will enable a person who is confined to a wheelchair, as a result of their disability, to gain access to a car. The ramp assists the person's ability to perform one of the activities of daily living, that is, travelling in or driving a passenger vehicle. In these circumstances the fold down ramp has the character of an aid to the function or capacity of a person with a disability. Thus, the cost of purchasing and installing the remote controlled power fold out ramp in the van qualifies as a medical expense. (b) Electronic park brake TR 93/34 includes car controls for a disabled person as an example of a medical or surgical appliance. As the electronic park brake is part of the car controls, the cost of purchasing and installing the brake qualifies as a medical expense. (c) Remaining modifications performed as part of the conversion package ATO Interpretative Decision ATO ID 2010/47 provides the Commissioner's view on whether the cost of configuring a standard car in preparation for the installation of medical or surgical appliances qualifies as a medical expense. As stated above, the van itself is not a medical or surgical appliance. While some of the individual modifications may qualify as an 'appliance' they do not qualify as a medical or surgical appliance. The modifications made are not themselves an aid to your function or capacity. The modifications do not replace or alleviate an absent or impaired bodily function or medical defect. They relate to either reconfiguring aspects of the vehicle in preparation for the installation of medical or surgical appliances themselves under paragraph 159P(4)(f) of the ITAA 1936. In the circumstances here the medical or surgical appliance is the fold down ramp. The next question is whether the modifications to the van in preparation for the installation of the ramp are payments 'in respect of' a medical or surgical appliance. Although the courts have held the phrase 'in respect of' to have 'the widest possible meaning of any expression intended to convey some connection or relation between the subject matters' (per Mann CJ in Trustee Executors & Agency Co. Ltd. v. Reilly [1941] VLR 110; [1941] ALR 105), there still needs to be a connection between the subject matters. In Case R12 84 ATC 165; (1984) 27 CTBR (NS) 535 Case 63 , the Board of Review held that travel expenses incurred in order to have artificial limbs fitted were not payments relating to the artificial limbs themselves, and therefore were not payments in respect of an artificial limb as required under paragraph 159P(4)(e) of the ITAA 1936. The Board found that it was difficult to establish a connection between the subject matters being the travel costs and the artificial limbs. In the course of their decision, the Board accepted that the phrase 'in respect of' in the context of subsection 159P(4) of the ITAA 1936 does not extend to payments that are made 'because of', 'arising out of' or 'in connection with'. The payments for the remaining modifications relate to either reconfiguring the van in preparation for the installation of the fold out ramp or meeting normal safety requirements. It is accepted that the costs were incurred because of or in connection with and as part of the preparation for the installation of the ramp. However they were not payments made 'in respect of' the ramp itself. Thus, the cost of the modifications made in preparing for the installation of the ramp do not qualify as a medical expense under paragraph 159P(4)(f) of the ITAA 1997. Electronics package The electronics package has modified the van's controls to allow you to control the vehicle, the cost of the electronics package is considered to be in relation to a medical or surgical appliance. Therefore the cost of the electronics package is a medical expense and can be included in calculating your entitlement to a medical expenses tax offset. Please be aware that as you received a government reimbursement for the cost of the electronic package, the reimbursement amount should be deducted from the total eligible medical expenses. | Detailed Reasoning - Conclusion: The cost of purchasing and installing the fold out ramp, electric park brake and electronic controls qualify as medical expenses for the purposes of section 159P of the ITAA 1936. When calculating your net medical expenses you will need to deduct the government reimbursement grant and that part of the contribution from a charity which relates to the eligible medical expenses.