ATO Interpretative Decision

ATO ID 2004/273 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it may be misleading. Refer also to ATO ID 2004/272 (withdrawn).
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a taxpayer entitled to a medical expense tax offset under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) for expenses debited to the credit card of their spouse and subsequently reimbursed by the taxpayer?

Decision

Yes. A taxpayer is entitled to a medical expense tax offset under section 159P of the ITAA 1936 for expenses debited to the credit card of their spouse and subsequently reimbursed by the taxpayer.

Facts

The taxpayer incurred medical expenses in excess of $1500.

The expenses were debited to the credit card of the taxpayer's spouse.

The credit card was subsequently partly paid by funds belonging to the taxpayer.

All the expenses were paid in the year of income.

The taxpayer received no reimbursement from a government, public authority, society, association or fund.

Reasons for Decision

Subsection 159P(1) of the ITAA 1936 states:

An amount paid by the taxpayer in the year of income as medical expenses in respect of himself, or in respect of a dependant who is a resident, less any amount paid to the taxpayer or any other person, and any amount which the taxpayer or any other person is entitled to be paid, in respect of those medical expenses by a government or public authority or by a society, association or fund (whether incorporated or not) shall, for the purposes of this section, be treated as a rebatable amount in respect of that year of income.

In AAT Case 144 (1987) 18 ATR 4055; Case U223 87 ATC 1231 the taxpayer was involved in a motor vehicle accident which resulted in substantial medical expenses. A large portion of the expenses were paid by the Government Insurance Office (GIO). After taking legal action the taxpayer received compensation which took into account the fact that the GIO had paid some medical expenses.

The taxpayer claimed a rebate for the amount paid by the GIO. The Administrative Appeals Tribunal held that he had not 'paid' the expenses and was, therefore, not entitled to the rebate. At ATR 4062; ATC 1237 Purvis J (Presidential Member) stated:

The taxpayer is not out of pocket by reason of the subject expenditure. He did not himself disburse the moneys. ...

This is not a case where the taxpayer has, from his own funds, or funds to which he would otherwise have been entitled, disbursed moneys and after payment by a government or public authority, or by a society, association or fund, still been "out-of-pocket"; the latter then being treated as rebateable, that is, subject to notional or actual reimbursement as to part, and at the expense of the public revenue.

Indeed, if in a case such as the present, where medical disbursements were paid by an insurer, a taxpayer was able to claim them as a rebateable amount, he would then derive a monetary benefit consequent on expenditure made by another and in respect of which he was at no time out of pocket. Where expenditure is incurred and payment funded by a taxpayer then except as to any part in respect of which there is an entitlement in the taxpayer to repayment, a claim for rebate is maintainable.

The taxpayer's situation can be distinguished from that set out above.

Even though all the payments were debited to the spouse's credit card, part of the debt was paid by the taxpayer. As such, the taxpayer was out of pocket for the amount of the medical expenses incurred on the card which was subsequently paid from their own funds.

In view of this, the taxpayer is entitled to a medical expense tax offset under section 159P of the ITAA 1936 for the amount of medical expenses debited to the spouse's credit card which was subsequently paid from their own funds. No medical expense tax offset is allowable for any part of the medical expenses, debited to the card, which was subsequently paid by the taxpayer's spouse.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   section 159P
   subsection 159P(1)

Case References:
Case U223
   87 ATC 1231

Related ATO Interpretative Decisions
ATO ID 2004/272

Keywords
Medical expenses rebates

Business Line:  Business and Personal Taxes Centre of Expertise

Date of publication:  26 March 2004

ISSN: 1445-2782