Edited version of private ruling

Authorisation Number: 1011521869531

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Ruling

Subject: Medical expense Tax Offset

Question 1

Can the costs for the transport, preservation and storage of cord blood stem cells qualify as medical expenses for the purposes of the medical expenses tax offset?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2009

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You underwent genetic testing as part of an IVF programme.

It was revealed that you have an abnormality.

On the birth of your child, you had the cord blood stem cells transported, cryopreserved and stored for possible future use.

You have done this as a precautionary measure in case of future illness.

You have paid for this service.

Reasons for decision

Summary

The costs for the transport, preservation and storage of cord blood stem cells do not qualify as medical expenses for the purposes of the medical expenses tax offset under section 159P of the ITAA 1936.

Detailed reasoning

Subsection 159P(3A) of the Income Tax Assessment Act 1936 provides that a tax offset is allowable to a taxpayer whose net medical expenses in the year of income exceed $1,500.

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 medically qualified practitioner… in respect to 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 CJs approach in Trustees Executors and Agency Co Ltd v. Reilly VLR 110 pages 111, that:

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

Accordingly, any payments 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.

You made a payment for the transport, preservation and storage of cord blood stem cells after the delivery of your child. The services provided are not in respect of an 'illness' as required by section 159P(4) of the ITAA 1936; nor is it an act in respect of remedying a deformity, disease, pain and so on and therefore would not satisfy the requirement of paragraph 159P(4)(a) of the ITAA 1936.

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

Therefore, the expenses you have paid for the transport, cryopreservation and storage of cord blood stem cells do not qualify as medical expenses for the purposes of the medical expenses tax offset under section 159P of the ITAA 1936.