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Ruling

Subject: Medical expenses tax offset

Question

Are the costs of breast enlargement and nose reconstruction considered to be medical expenses for the purpose of claiming a medical expenses tax offset?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You were suffering from severe social phobias regarding peoples' responses to your physical characteristics. This caused you to have panic attacks.

You have incurred expenses for breast enlargement and nose reconstruction.

Since having the surgery, your mental state has dramatically improved and has reduced your need for medication.

You are not entitled to a Medicare benefit in relation to the surgery.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 159P(1)

Income Tax Assessment Act 1936 Subsection 159P(4)

Income Tax Assessment Act 1936 Paragraph 159P(4)(f)

Reasons for decision

A medical expenses tax offset is available under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936), where you pay medical expenses in an income year for yourself and/or a dependant who is an Australian resident.

The medical expenses tax offset is only available if the amount of medical expenses (reduced by any entitlement to reimbursement from a health fund or government authority) exceeds the annual threshold. The tax offset is 20% of the amount by which the net medical expenses exceeds the annual threshold.

Medical expenses are defined in subsection 159P(4) of the ITAA 1936 to include payments to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation (paragraph (a) of the definition).

Paragraph 159P(4) of the ITAA 1936 defines 'ineligible medical expenses' as payments to a legally qualified practitioner, nurse or chemist, or a public or private hospital, in respect of a cosmetic operation that is not a professional service for which a Medicare benefit is payable. This provision applies to medical expenses paid from 1 July 2005 for the 2006 income year and forward.

The payments to the doctor and hospital are payments to a 'legally qualified medical practitioner' or a 'public or private hospital'. As such the expenses will only be ineligible medical expenses if the service performed was a cosmetic operation.

In determining whether an operation is 'cosmetic' the Commissioner must consider the ordinary meaning of the word (paragraph 4.18 of the Explanatory Memorandum to the Tax Laws Amendment (2005 Measures No 6) Bill 2005 (the EM)).

Paragraph 4.19 of the EM refers to the following definition of cosmetic in The Macquarie Dictionary:

· serving to beautify; imparting or improving beauty, especially of the complexion; or

· designed to effect superficial alteration while keeping the basis unchanged.

In order for this definition of cosmetic to be satisfied, it is sufficient that either part of the definition is met.

In relation to the first part of the above definition, breast enlargement and nose reconstruction serve to beautify your appearance. The operations do not correct a medical condition. Rather, the operations have superficially changed your appearance.

It is recognised that having the surgery may have ultimately affected your psychological wellbeing. However, as noted above, the operations were specifically undertaken to alter physical features that were not themselves directly affected by a medical condition.

In view of the above, the operations are considered cosmetic operations and, as you are not entitled to a Medicare benefit under Part II of the Health Insurance Act 1973 , the expenses are ineligible medical expenses for the purposes of subsection 159P(4) of the ITAA 1936.