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Edited version of private ruling
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Ruling
Subject: Medical expenses tax offset
Question
Should the amounts repaid to Medicare and your private health fund as a result of a compensation payment, be included in your calculation of the medical expenses tax offset?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts and circumstances
Your dependant child suffered an injury.
You paid medical expenses relating to the injury on their behalf.
You made Medicare and private health fund claims in relation to these expenses and received partial reimbursements.
A compensation claim was settled out of court, and a lump sum payment has been made to your child.
A percentage of the settlement sum was withheld from the settlement payment and paid directly to Medicare and your private health fund.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 159P
Income Tax Assessment Act 1936 Subsection 159P(1)
Reasons for decision
A medical expenses tax offset is available to a taxpayer under subsection 159P(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer pays medical expenses in an income year for themselves or a dependant who is an Australian resident, to the extent that they are not reimbursed, or are eligible to be reimbursed, from a government or public authority or a society, association or fund.
The meaning of the words 'paid by the taxpayer' was dealt with in Case U223 87 ATC 1231; Case 144 (1987) 18 ATR 4055. In that case a taxpayer was injured in an accident and was awarded damages. The insurer of the other party to the action paid the taxpayer's medical expenses. That amount was deducted from the final damages award. The taxpayer claimed the medical expense tax offset under section 159P of the ITAA 1936 in respect of the medical expenses paid by the insurer. The Administrative Appeals Tribunal stated that the taxpayer was not entitled to the tax offset as the taxpayer did not 'pay' medical expenses as required by subsection 159P(1) of the ITAA 1936.
Your situation is similar to the above case in that a percentage of the settlement sum was withheld from the settlement payment and paid directly to Medicare and your private health fund, for the amounts that have already been reimbursed to you.
The amounts paid to Medicare and your private health fund by the defendant are not payments of 'medical expenses' as defined and you have not 'paid' the medical expenses as required under subsection 159P(1) of the ITAA 1936. Therefore, you are not entitled to include these expenses in your calculation of the medical expenses tax offset.