Edited version of private ruling

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Ruling

Subject: Medical expenses tax offset

Question 1

Does the private health insurance excess amount you paid to the hospital for an IVF procedure qualify as a medical expense for the purposes of calculating a medical expenses tax offset (METO)?

Answer: Yes.

Question 2

Does the private health insurance excess amount you are required to pay to the hospital for the baby's birth qualify as a medical expense for the purposes of calculating a METO?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts

Under a private health insurance policy you and your spouse are required to pay an excess when admitted to a hospital or day surgery/theatre.

You paid the excess when your spouse entered day surgery/theatre for IVF treatment in the 2009-10 income year.

You will be required to pay the excess when your spouse is admitted to hospital for the birth of the baby in the 2010-11 income year.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 159P.

Reasons for decision

A METO is available where the taxpayer, who is an Australian resident, pays medical expenses in an income year for themself or a dependant who is also an Australian resident. The METO is only available if the amount of medical expenses, reduced by any entitlement to reimbursement from a health fund or government authority exceeds $1,500.

For an expense to qualify as a medical expense for the purposes of claiming a METO, the expense must fall within the definition of 'medical expenses' as contained in subsection 159P(4) of the Income Tax Assessment Act 1936.

Medical expenses - IVF procedure

Paragraph (a) of the definition of medical expenses relates to your circumstances. In this paragraph, 'medical expenses' for the purpose of the METO are defined to cover payments 'to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation.

Taxation Ruling IT 2359 states that infertility is an illness within the ordinary meaning of the term and payments to a legally qualified medical practitioner or hospital for treatment under an IVF program qualify as medical expenses.

In your case, you paid a day surgery/theatre the private health insurance excess amount when your spouse was admitted for an IVF procedure. This payment is considered to be part of the cost of the treatment to overcome infertility.

Therefore, you are entitled to include the excess payment as a medical expense when calculating a METO in the 2009-10 income year.

Medical expenses - birth of child

In Case Q21 83 ATC 77; Case 85 26 CTBR (NS) 570 (Case Q21) Mr Hogan, in the course of his decision, discussed the scope of the phrase 'in respect of' and endorsed Man 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 made 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 view as to the meaning of 'illness'. Paragraph 5 of IT 2359 states:

The terms 'illness' and 'operation' are not defined in the income tax law. The terms are not technical and are to be given the meanings which are ordinarily given to them.

This ruling goes on to endorse Dr Gerber's understanding of the ordinary meaning of illness as stated in Case Q21:

Illness is not defined in the Act. However, I do not accept that it is a term of art. Adopting a purposive construction, I find the term includes any condition marked by a pronounced deviation from the normal healthy state. If this is the correct view, illness must include any disorder of body, function or systems.

It can be argued that pregnancy is a process in which the normal healthy state is markedly altered for the duration of and for some time after the pregnancy and particularly during childbirth. It is a condition which carries significant risks of mortality, for both mother and child. As such, we consider pregnancy and childbirth would be caught by the ordinary meaning of the term 'illness'.

Therefore, the excess amount you will be required to pay on your spouse's admission to the hospital for the birth of the baby satisfies the definition of medical expenses.

You are entitled to include the excess payment as a medical expense when calculating your METO in the 2010-11 income year.

Note

Please check the ATO website www.ato.gov.au for any increase in the net medical expenses threshold that may occur in the 2010-11 and future years.