Private ruling: Medical expenses tax offset
Published: July 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Can you include the unreimbursed costs paid for medical work when calculating your medical expenses tax offset? | A1: Yes.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You suffer from an advanced medical disease. In the 2011-12 financial year you commenced extensive surgery. You will use temporary implants until permanent reconstruction. You have paid significant pre-surgical consultancy, hospital, radiological, anaesthetic and pharmaceutical costs. Some of these costs have been reimbursed by Medicare. You also anticipate significant expenses in the 2012-13 financial year. You have correspondence from your specialist confirming the work carried out and proposed, and stating that the extensive treatment is based solely on functional and pathological needs, and is not for cosmetic reasons. You have paid, after benefits paid by Medicare and your private health insurer, medical expenses greater than the threshold of $2060 for the 2012 financial year, and have received estimates in your dental treatment plan which indicates that you will exceed the threshold in the 2013 financial year.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P(3A) | Income Tax Assessment Act 1936 Section 159P(4).

Reasons for decision: Summary: Subsection 159P(3A) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a tax offset is allowable to a taxpayer whose eligible medical expenses (reduced by any entitlement to reimbursement from a health fund or government authority) in the year of income exceed the threshold, which for the 2012 income year is $2,060. The medical expenses tax offset is 20% of the amount by which the net medical expenses exceed the threshold for the income year. However, it should be noted that from the 2012-13 financial year onwards the medical expenses tax offset will be means tested. Taxpayers with an adjusted taxable income above $84,000 for singles or $168,000 for a couple or family in 2012-13 will be affected. The family threshold will increase by $1,500 for each dependent child after the first. These taxpayers will only be able to claim a reimbursement of 10% for eligible out of pocket expenses incurred in excess of $5,000 (indexed annually). The medical expenses must be paid by the taxpayer in respect of themselves or their dependant. The term 'medical expenses' is defined in subsection 159P(4) of the ITAA 1936. In your case, you have an advanced disease. The work being undertaken is not cosmetic and is considered to be an eligible expense which can be included in the calculation of your medical expenses tax offset.

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