Private ruling: Medical expense tax offset
Published: February 2014
Ruling period: Year ended 30 June 2005 | Year ended 30 June 2006 | Year ended 30 June 2007 | Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2004

Ruling: Q1: Are you entitled to a medical expenses tax offset for medical expenses where the amount is recovered? | A1: No

Relevant facts and circumstances: You were injured. Your medical expenses were paid by Body A. You received a lump sum payment for your injury from a third party. There is no formal legal document showing the breakdown of your lump sum payment. Body A were reimbursed from your lump sum payment for your medical expenses.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P | Income Tax Assessment Act 1936 Subsection 159P(1)

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, to the extent that they are not reimbursed, or are eligible to be reimbursed, from a government or public authority or a society, association or fund. The meaning of the words 'paid by the taxpayer' was dealt with in Case U223 87 ATC 1231; Case 144 (1987) 18 ATR 4055. In that case a taxpayer was injured in an accident and was awarded damages. The insurer of the other party to the action paid the taxpayer's medical expenses. That amount was deducted from the final damages award. The taxpayer claimed the medical expense tax offset under section 159P of the ITAA 1936 in respect of the medical expenses paid by the insurer. The Administrative Appeals Tribunal stated that the taxpayer was not entitled to the tax offset as the taxpayer did not 'pay' medical expenses as required by subsection 159P(1) of the ITAA 1936. In your case, you reimbursed Body A for the medical expenses they initially paid using your lump sum payment. The third party who provided you with the lump sum payment paid for your medical expenses in relation to the accident. Your situation is similar to the above case as your lump sum payment was inclusive of costs and a portion was set aside to repay Body A for your medical expenses. The amounts paid directly to Body A by the third party are not payments of 'medical expenses' as defined and you have not 'paid' the medical expenses as required under subsection 159P(1) of the ITAA 1936. Therefore, you are not entitled to include theses costs in your calculation of the medical expense tax offset as you are not out of pocket for the medical expenses. They have been paid by the third party and are a recoupment of costs.