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Edited version of your written advice
Authorisation Number: 1013032872431
Date of advice: 10 June 2016
Ruling
Subject: Aged care expenses
Question 1
Are you allowed a deduction for your aged care expenses?
Answer
No.
Question 2
Can you include the payments relating to your aged care in your medical expenses tax offset calculation?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 20ww
Year ended 30 June 20xx
Year ended 30 June 20yy
Year ended 30 June 20zz
The scheme commenced on
1 July 20vv
Relevant facts
You have recently been assessed by the Age Care Assessment Team to require age care.
You are receiving aged care.
You pay money for this care.
Your aged care is being provided by an approved provider.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 159P
Reasons for decision
Deductions
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it.
Medical expenses such as payments for aged care have no direct connection to the gaining or producing of your assessable income. Also the expenses relate to a personal medical condition and are regarded as private in nature. Therefore no deduction is allowed. However, as outlined below, you may be entitled to a medical expenses tax offset.
Medical expenses tax offset
A medical expenses tax offset is available under subsection 159P(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where you pay certain medical expenses in an income year for yourself or a dependant who is an Australian resident, to the extent that you are not reimbursed, or are eligible to be reimbursed, from a government or public authority or a society, association or fund.
Under changes to the legislation, the medical expenses tax offset is being phased out.
Subsection 159P(1B) of the ITAA 1936 states that:
For the 2013-14 to 2018-19 years of income, an amount that would otherwise be paid as medical expenses is treated as not being paid as medical expenses unless the payment:
(a) relates to an aid for a person with a disability; or
(b) relates to services rendered by a person as an attendant of a person with a disability; or
(c) relates to care provided by an approved provider (within the meaning of the Aged Care Act 1997) of a person who:
(i) is approved as a care recipient under that Act; or
(ii) is a continuing care recipient within the meaning of that Act.
In your case you have been assessed and approved as a care recipient and are receiving care provided by an approved provider.
Therefore your out-of-pocket costs for your aged care are included in the calculation of your medical expenses tax offset.
Please note that this tax offset is income tested. The percentage of net medical expenses you can claim and the threshold amount is determined by your adjusted taxable income (ATI) and family status.
For the 2015-16 financial year where your family's (you and your spouse's) adjusted taxable income is $180,000 or less ($90,000 or less for singles), you are entitled to a medical expenses tax offset equal to 20% of your net medical expenses over $2,265.
Therefore if your net aged care expenses are less than $2,265 for the 2015-16, you may not be entitled to a medical expenses tax offset.
Please note that the threshold amount of $2,265 is indexed annually and changes each year. Therefore when doing your 20xx tax return and other future years you need to check on the threshold amount.
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