ATO Interpretative Decision

ATO ID 2002/1087

Income Tax

• This ATO ID is amended to remove reference to superseded dollar threshold amount and to reconcile current terminology ('tax offset') with legislative wording of section 159P of the ITAA 1936.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Do expenses incurred in relation to the collection, processing and testing of cord and maternal blood and the storage of stem cells qualify as medical expenses for the purposes of the medical expenses tax offset under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. Expenses incurred in relation to the collection, processing and testing of cord and maternal blood and the storage of stem cells do not qualify as medical expenses for the purposes of the medical expenses tax offset under section 159P of the ITAA 1936.

Facts

The taxpayer and their spouse entered into an arrangement with a company for the collection and processing of cord and maternal blood samples and the storage of stem cells from the cord blood sample.

The cord and maternal blood samples were collected immediately after the birth of the taxpayer's child at a public hospital by their medical practitioner.

The collection process is non-invasive. The sample is collected by inserting a needle into the umbilical vein to draw placental blood. The blood is collected after the birth of the child and either prior to or after the delivery of the placenta. A maternal blood sample is also taken for infectious disease testing.

The company carries out sterility, cell count and presence of the stem cell marker tests on the cord blood sample, and Hepatitis B and C, HIV, HTLV and syphilis tests on the maternal blood sample.

The company processes the cord blood to isolate the stem cells for storage. The stem cells are cryogenically stored for potential future use in the treatment of medical conditions (diseases, disorders etc.).

The payment that the taxpayer made to the company relates to registration and account establishment, collection kit and storage cassette, laboratory processing and testing fee including disbursement for the collection fee payable to the hospital, the collection fee payable to the obstetrician or medical practitioner, pathology and viability test, courier fee (hospital to laboratory) and maternal blood tests.

The stems cells have not been used in the treatment of any illness, disease or disorder suffered by the taxpayer or any of their family members.

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

Reasons for Decision

Subsection 159P(3A) of the ITAA 1936 provides that a rebate of tax (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 section 159P(4) of the ITAA 1936. Paragraph (a) of the definition includes payments made to "a legally qualified medical practitioner ... in respect of an illness or operation".

In Case Q21 83 ATC 77; (1983) 26 CTBR (NS) Case 85 Mr Hogan, in the course of his decision, discussed the scope of the phrase 'in respect of' and endorsed Mann CJ's 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 or hospital in connection with an illness or an operation would satisfy the requirement that the payment is in respect of an illness or operation.

Taxation Ruling IT 2359 contains the Commissioner's views as to the meaning of 'illness' or 'operation'. The terms are not defined in the income tax law and are to be given their ordinary meaning.

The term 'illness' within the context of section 159P of the ITAA 1936 requires an existing condition that is a deviation from the normal healthy state (paragraph 5 of IT 2359).

Paragraph 5 of IT 2359 also states that

'In its ordinary meaning the term "operation" refers to an act performed by hand and/or instrument to some part of the body to remedy deformity, injury, disease, pain etc.'

The taxpayer made the payment to the company for the collection of blood samples by their medical practitioner after the delivery of their child. This enabled the company to analyse the cord and maternal blood samples, and process the cord blood sample to isolate stem cells for long term storage for the potential future use in the treatment of diseases. The services provided by the hospital, the medical practitioner and the company are not in respect of an 'illness' as required by section 159P(4) of the ITAA 1936.

The act of drawing blood from the umbilical cord, either from a placenta that has been delivered or a placenta that is attached to the uterus, is not caught by the ordinary meaning of 'operation'. The act is not in respect of remedying a deformity, disease, pain etc and therefore would not satisfy the requirement of paragraph 159P(4)(a) of the ITAA 1936.

Accordingly, the amount paid by the taxpayer is not paid to a medical practitioner or a hospital in respect of an illness or operation.

Therefore, payments made by the taxpayer for the collection, processing and testing of cord and maternal blood samples and the storage of stem cells do not qualify as medical expenses for the purposes of the medical expenses tax offset under section 159P of the ITAA 1936.

Year of income:  Year ended 30 June 2002

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

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

Keywords
Medical expenses
Medical expenses rebates

Business Line:  Small Business/Individual Taxpayers

Date of publication:  30 November 2002

ISSN: 1445-2782