Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 4 Amendments relating to tax offset for medical expenses
Outline of chapter
4.1 Schedule 4 to this bill will amend the ITAA 1936 to increase the level of expenses above which the medical expenses tax offset applies from $1,250 per annum to $1,500 per annum.
Context of amendments
4.2 The medical expenses tax offset is currently available to resident taxpayers at a rate of 20% of any net medical expenses in excess of $1,250 in an income year.
4.3 The Federal Government announced on 14 May 2002, as part of the 2002-2003 Federal Budget, that the level above which the offset applies would be increased from $1,250 to $1,500.
4.4 Measures taken by the Government since 1997 have reduced the need for taxpayers to rely on the medical expenses offset to assist them with the cost of medical expenses. The introduction of the 30% private health insurance offset has made private health cover affordable for many more taxpayers. Further, the Government's 'Closing the Gap' initiative allows the full cost of many medical services to be covered by private health insurance.
Summary of new law
4.5 Under the proposed amendment, the medical expenses tax offset will be available to resident taxpayers at a rate of 20% of any net medical expenses above $1,500 in an income year.
Detailed explanation of new law
4.6 Section 159P of the ITAA 1936 provides a tax offset at a rate of 20% of any 'net medical expenses' in excess of $1,250 in an income year. The offset can be claimed by resident taxpayers in respect of themselves or their resident dependants. 'Net medical expenses' includes the part of those expenses to which the taxpayer is not entitled to reimbursement by Medicare, health insurance funds, or the like.
4.7 Under the proposed amendment, the level of expenses above which the offset applies will be increased from $1,250 to $1,500. The medical expenses tax offset will be available at a rate of 20% of any net medical expenses above $1,500 in an income year.
Application and transitional provisions
4.8 The proposed amendment is to apply to the 2002-2003 and subsequent income years.