Federal Commissioner of Taxation v. Ildes

Spender J

Federal Court

Judgment date: Judgment handed down 16 March 1988.

Spender J.

This is an appeal under sec. 44 of the Administrative Appeals Tribunal Act 1975 from a decision of the Taxation Appeals Tribunal of the Administrative Appeals Tribunal [reported as Case U43,
87 ATC 314], which set aside a decision of the Commissioner and upheld the objection by the taxpayer, Ugur Ildes, that the cost of acquiring and installing a spa bar with hydrojets at his home on or about 21 June 1984 was rebatable as a concessional

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expenditure pursuant to sec. 159P of the Income Tax Assessment Act 1936 (``the Tax Act'').

Section 159P relevantly provides:

``(1) An amount paid by the taxpayer in the year of income as medical expenses in respect of himself... shall, for the purposes of this section, be treated as a rebatable amount in respect of that year of income.


(4) In this section -

  • ...
  • `medical expenses' means payments -
    • ...
    • (b) to a legally qualified dentist for dental services or treatment or the supply, alteration or repair of artificial teeth;
    • (c) to a person registered under a law of a State or Territory as a dental mechanic in respect of charges lawfully made by that person for the supply, alteration or repair of artificial teeth;
    • (d) for therapeutic treatment administered by direction of a legally qualified medical practitioner;
    • (e) in respect of an artificial limb (or part of a limb), artificial eye or hearing aid;
    • (f) in respect of a medical or surgical appliance (not otherwise specified in this definition) prescribed by a legally qualified medical practitioner;
    • (g) for -
      • (i) the testing of eyes or the prescribing of spectacles by a person legally qualified to perform those services; or
      • (ii) the supply of spectacles in accordance with any such prescription;
  • ...''

The Tribunal found that the spa pool, which was a ``Grecian Deluxe'' model, described in the literature of the installer as ``(a) medium sized Spa from the `Premier Family Range'. Seats 5-6 Adults(.)'' was installed in the taxpayer's backyard after excavation and a water and cement mix base laid and the shell placed on top of that base. The decision of the Tribunal proceeded on the basis that the spa became a ``fixture'' and that it could not be removed without destroying its function. Photographs before the Tribunal showed that the spa pool is attractively landscaped and surrounded by a tiled surface with an outdoor wood setting and outdoor plastic lounges.

The Commissioner had asserted before the Tribunal that the cost of the spa pool did not qualify as a medical expense. It was submitted on the Commissioner's behalf that the spa pool had become a fixture and therefore had ceased to qualify as a medical expense within the meaning of sec. 159P(4)(f). A number of decisions of Boards of Review was referred to in this respect. The Tribunal rejected the view expressed in those cases, and said [at p. 316]:

``No reason is offered why a fixture cannot be a medical appliance or why it loses it characteristic once it is embedded in the soil. On the assumption that sec. 159P is remedial and designed to provide some modest relief by way of rebate for taxpayers who suffer an illness or disability and who incur `medical expenses' as defined, it seems to me that this intention is defeated by a method of interpretation which relies on a word-by-word analysis derived from the Oxford English Dictionary. I am satisfied that the mere fact that this spa pool is affixed to the soil is not a relevant criterion as to whether or not it qualifies as a `medical appliance'.''

Later on, the learned Senior Member constituting the Tribunal said:

``... the test whether an appliance is `medical' relates to its function, not whether it happens to be embedded in concrete.''

The Tribunal referred to Case P40,
82 ATC 184, and the observations of Mr Pape, at p. 191, where he said, having referred to various of the appliances in the section:

``... more specifically they have the common characteristic of being artificial aids to function or capacity, albeit that an artificial eye may be said to be cosmetic.


It is the words of the section which must elucidate its intention, and in my opinion

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the word `appliance' is to be construed in the context of this definition to mean artificial aids, in other words artificial aids to a person's ability to carry out a normal life when in fact he suffers from some disability - see
Holmes v. Bradmill Industries Ltd. (1971) W.C.R. (N.S.W.) 97.


In my opinion the hydrotherapy pool is not properly capable of being classified as an artificial aid within the meaning of para. (f).

... The hydrotherapy pool was in my opinion the means of administering treatment rather than acting as an artificial aid to ameliorate the taxpayer's physical movement.''

[p. 316]

This approach was rejected by the Tribunal. In my opinion, however, the observations are sound.

The question as posed [at p. 317] by the Tribunal was:

``... can a spa pool of a kind, which is found in many homes and blocks of units, and used for purposes other than therapeutics constitute a `medical appliance' merely because it has been prescribed by a medical practitioner?''

The Tribunal answered this in the affirmative, and said in this respect:

``It is not part of my function to evaluate the effectiveness of a spa pool for chronic sciatica. It is sufficient that the applicant's doctor saw fit to prescribe it. I accept that this spa pool was installed for the sole purpose of alleviating the applicant's back pain and so reduce the dosage of his medication.''

In my view, the Tribunal misdirected itself as to what constituted a ``medical appliance'' for the purposes of sec. 159P(4)(f). Accepting for present purposes that an appliance can comprehend a fixture, it seems to me that the essential ingredient of a medical appliance for the purposes of sec. 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.

In Case P29
(1963) 14 T.B.R.D. 143, the Board of Review No. 2 concluded that an airconditioning 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 observations of the Board at p. 144 are apposite in the present circumstances. The Board said:

``(The taxpayer) argued that as the air-conditioning unit was purchased and installed for the purpose of improving his health and was effective in so doing it was a `medical appliance' in the dictionary meaning of the words.

We think that this approach to the question stems from a misunderstanding of the section. The taxpayer's physician advised the use of an air-conditioning unit, that is to say of an article which would be described in ordinary speech as a household and commercial appliance. That 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 taxpayer also submitted that the section provided benefits for taxpayers and it should be given a liberal interpretation to effect the spirit and intention of the legislation. For the reasons which follow we think the words of the section are unambiguous and we give to them their ordinary meaning.

It is not sufficient for a taxpayer to show that a physician has prescribed an appliance to be used for medical or surgical ends. That would be implicit without more in the requirement that the appliance be prescribed. The section requires that the appliance be a medical or surgical appliance, that is an appliance which is manufactured as or distributed as or generally recognised to be an article or thing intended to achieve a medical or surgical end.''

I regard this analysis as sound.

Such a view is consistent with the conclusion that a chairlift installed in a home and affixed to a stairway and electrically operated is a medical appliance within the subsection as held by the No. 1 Board of Review in Case D37,
72 ATC 210. Such a device is clearly an aid to function, in the same way as a wheelchair is. The fact

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that it might be regarded as a fixture is not to the point.

In short, in my view, whether an appliance is a medical or surgical appliance within the meaning of the subsection is not determined, as the Tribunal concluded, by asking whether its prescription had a therapeutic purpose, but by asking whether the appliance is an aid to function or capacity.

As a further argument advanced on behalf of the Commissioner, it was said that, even if the spa pool was a medical appliance (contrary to my view), it had not been ``prescribed'' as required by the Act. It was not submitted on the Commssioner's behalf that there was any requirement that a prescription be in writing.

The Tribunal noted [at p. 317] that:

``... I have no evidence before me whether the applicant had discussed a spa installation with his doctor before 9 July.''

Accompanying the Income Tax Return for the year ended June 1984, the taxpayer had enclosed a letter, dated 9 July 1984, from his medical practitioner in these terms:

``Mr UGUR ILDES is a patient of mine who suffers from severe low back pain and sciatica. He is in persistent pain and it is medically essential for him to have the Spa with hydrojets at home to help alleviate his pain.''

It seems to me to have been open to the Tribunal to have concluded that the spa pool had been prescribed by the taxpayer's medical practitioner prior to its installation. The Tribunal concluded, as I think it was open to it so to do [at p. 317], that:

``... on the probabilities... the spa pool was installed on the recommendation of the applicant's doctor, and thus `prescribed' within the meaning of the section.''

It seems clear that the letter in the taxpayer's return was obtained after the event in respect of matters that had occurred prior to the installation of the spa pool. In my opinion, no error has been demonstrated in respect of this aspect of the Commissioner's appeal.

However, for the reasons earlier expressed, I am of the view that the taxpayer is not entitled to a rebate as a concessional expenditure pursuant to sec. 159P of the Tax Act for the cost of acquiring and installing the spa pool and associated equipment in his home on or about 21 June 1984.

I order that the decision of the Tribunal be set aside and that in lieu thereof the Commissioner's decision on the objection in respect of the year of income ended 30 June 1984 be affirmed.

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