ATO Interpretative Decision
ATO ID 2001/181
Income Tax
Medical expenses rebate - repayment of Medicare benefitsFOI status: may be released
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does a taxpayer who has had to repay medicare benefits as a result of receiving a compensation payment include the repaid amount in his or her claim for a medical expenses rebate under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. Amounts repaid to the Health Insurance Commission (HIC) as a result of the receipt of a compensation payment are not rebatable for the purposes of the medical expenses rebate under section 159P of the ITAA 1936.
Facts
A taxpayer was awarded compensation in an out of court settlement of a legal action against their employer.
The compensation was paid by the employer's insurer.
The legal action was for damages for an injury caused to the taxpayer in his or her employment.
The settlement sum took into account, among other amounts, any amounts that the taxpayer would be required to repay to the Commonwealth pursuant to the provisions of the Health and Other Services (Compensation) Act 1995.
The sum was paid to the taxpayer in full settlement of all claims for damages that the taxpayer had, or at any time in the future might have had, but for the settlement.
As a result of the injury the taxpayer had received medicare benefits which they were required to repay to the HIC when they received the compensation.
A percentage of the settlement sum was withheld from the settlement payment and paid directly to the HIC by the insurer.
The taxpayer paid the balance of the repayable amount to the HIC out of the compensation received.
Reasons for Decision
There are a number of requirements that must be met before the taxpayer has an amount that is rebatable for the purposes of the medical expenses rebate.
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- An amount must be paid as 'medical expenses' as defined by subsection 159P(4) of the ITAA 1936.
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- The expenses must be paid by the taxpayer.
The rebatable amount is then the amount paid as medical expenses less any amount paid to the taxpayer in respect of those medical expenses by a government, public authority, society, association or fund. A society, association or fund includes an insurance company (Case S64 85 ATC 460; 28 CTBR (NS) Case 70).
In this case the amounts paid to the HIC were not payments of 'medical expenses' as defined.
In addition the percentage of the settlement sum that was withheld from the compensation were paid directly to HIC by the insurer and not paid by the taxpayer (Case U233 87 ATC 1231).
The taxpayer is accordingly not able to include the amounts repaid to the HIC in their claim for a medical expenses rebate under section 159P of the ITAA 1936.
If an amount had otherwise been paid by the taxpayer as medical expenses, in calculating the rebatable amount, the amount paid would have been reduced by the amount of compensation that the taxpayer received, or was entitled to receive, from the insurance company.
Date of decision: 4 July 2001
Legislative References:
Income Tax Assessment Act 1936
section 159P
subsection 159P(4)
The Act
Keywords
Medical expenses
Medical expenses rebates
Rebates
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 4 July 2001 | Original statement |
| 16 April 2010 | Archived |
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