Private ruling: Medical expenses tax offset - lump sum bond retention fee
Published: April 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are monthly lump sum bond retention amounts and bond interest fees considered to be eligible medical expense for the purposes of the medical expenses tax offset? | A1: Yes.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You have been assessed by an aged care assessment team (ACAT) as requiring high-level care. You entered a residential aged care facility which is approved under the Aged Care Act 1997 . Your accommodation bond was not paid in full. The aged care provider charged you a bond interest fee up until your accommodation bond was paid in full. The aged care provider deducts a monthly retention amount from your lump sum accommodation bond.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P | Income Tax Assessment Act 1936 Subsection 159P(1) | Income Tax Assessment Act 1936 Section 159P(4) | Income Tax Assessment Act 1936 paragraph 159P(4)(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. The amount of net medical expenses tax offset you can claim now depends on your level of income as the rebate is now income tested. This not only affects the threshold amount but also the percentage of the rebate you can claim. Please note that the threshold amount is subject to indexation and will change in future income years. 'Medical expenses' are defined in subsection 159P(4) of the ITAA 1936. Paragraph (a) includes payments to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital in respect of an illness or operation. An aged care facility that is an 'approved provider' under the Aged Care Act 1997 (ACT) is considered to be a 'hospital' for the purposes of subsection 159P(4) of the ITAA 1936. It is accepted that the nature of care provided to a low-level or high-level care recipient may be characterised as being in relation to an 'illness' because such care is necessarily provided to someone whose conditions is not that of a health state. The amount retained from the lump sum accommodation bond and the bond interest fee are considered to be payments made to a hospital in respect of an illness and accordingly qualify as a eligible medical expenses for the purposes of the medical expenses tax offset and can be included in your calculation of the medical expense tax offset.