ATO Interpretative Decision

ATO ID 2002/1007 (Withdrawn)

Income Tax

• This ATO ID is withdrawn because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that does not apply after the 2014-15 year of income. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for years of income up to, and including, the 2014-15 year of income.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does an additional payment made by a taxpayer to their medical practitioner, as a consequence of the increased medical insurance fees charged to medical practitioners, qualify as a medical expense for the purposes of claiming the medical expenses tax offset under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. An additional payment made by a taxpayer to their medical practitioner, as a consequence of the increased medical insurance fees charged to medical practitioners, qualifies as a medical expense for the purposes of claiming the medical expenses tax offset under section 159P of the ITAA 1936.

Facts

The taxpayer's spouse consulted a medical practitioner in relation to an illness.

The taxpayer was required to pay an amount to their medical practitioner as a consequence of the increased medical insurance fee charged to medical practitioners.

The medical practitioner did not increase their standard fees to incorporate the amount, but issued a separate invoice to the taxpayer for the payment of the amount described as a 'non-claimable insurance fee'.

The taxpayer is not entitled to receive any reimbursement for the payment.

The taxpayer would not have incurred the additional expense were it not for the fact that their spouse was consulting the medical practitioner in relation to an illness.

Reasons for Decision

Subsection 159P(3A) of the ITAA 1936 provides that a rebate of tax (now referred to as a 'tax offset') is allowable to a taxpayer whose net medical expenses in the year of income exceed a threshold dollar amount.

The medical expenses must be paid by the taxpayer in respect of themselves or their dependant.

The term 'medical expenses' is defined in paragraph 159P(4)(a) of the ITAA 1936 to include payments to a legally qualified medical practitioner in respect of an illness or operation.

In Case Q21 83 ATC 77; (1983) 26 CTBR (NS) 570 Mr Hogan, in the course of his decision, discussed the scope of the phrase 'in respect of' and endorsed Mann CJ's expansive approach in Trustees Executors and Agency Co Ltd v. Reilly [1941] VLR 110 at page 111, that:

'The words "in respect of" are difficult of definition but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the words refer.'

Accordingly, any payment to a legally qualified medical practitioner in connection with an illness or an operation would satisfy the requirement that the payment is in respect of an illness or operation.

The taxpayer made the payment to their medical practitioner as a consequence of their need for the professional services provided by the medical practitioner in relation to their spouse's illness. Whilst the amount was charged separately and is described as a 'non-claimable insurance fee', this does not change the character of that expense as an amount paid to the medical practitioner for their services. Any charge for professional services will include a component for that professional's costs of operating their practice but this does not change their character as a medical expense. The fact that the medical practitioner has chosen to disclose the reason for the increase in their fees and in fact charges the increase separately is insufficient to change the character of the payment as one being made 'in respect of' an illness.

Accordingly, the amount satisfies the requirement that the payment is made to a medical practitioner in respect of an illness pursuant to paragraph 159P(4)(a) of the ITAA 1936.

The payment by the taxpayer to the medical practitioner as a consequence of the increased medical insurance fees charged to medical practitioners therefore qualifies as a medical expense for the purpose of calculating the medical expenses tax offset under section 159P of the ITAA 1936.

Note: Changes made by Act No. 11 of 2014 provide that rebate for medical expenses under section 159P of the ITAA 1936 will be phased out in respect of the 2019-20 income year or a later income year - subsection 159P(1A).

Amendment History

Year of income:  Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1936
   section 159P
   subsection 159P(1A)
   subsection 159P(3A)
   paragraph 159P(4)(a)

Case References:
Case Q21 / Case 85
   83 ATC 77
   (1983) 26 CTBR (NS) 570

Keywords
Medical expenses
Medical expenses rebates
Medical practitioners

Business Line:  Small Business/Individual Taxpayers

Date of publication:  30 October 2002

ISSN: 1445-2782