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Edited version of your private ruling
Authorisation Number: 1012138124153
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Subject: Medical expense offset
Question
Are you entitled to include the medical costs awarded in the compensation payment in a calculation for a medical expenses tax offset?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 June 2007
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You sustained injuries in a motor vehicle accident and received a lump sum compensation amount. Workers compensation payments, legal costs and Medicare amounts were deducted from the compensation amount.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 159P
Reasons for decision
Detailed reasoning
Subsection 159P(3A) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a tax offset is allowable in the 2009-10 income year to a taxpayer whose net medical expenses in the year of income exceed $1,500.
Subsection 159P(1) of the ITAA 1936 requires that in order for an amount to qualify as a rebatable amount it must be a medical expense 'paid by the taxpayer' in respect of themselves or their dependants.
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.
In your case your medical expenses were paid by your insurance company and were not by paid by you. Your lump sum compensation payment was reduced by the amount of these payments so that you were not compensated twice. You have not 'paid' the medical expenses as required under subsection 159P(1) of the ITAA 1936. Therefore, you are not entitled to include the expenses in a calculation for a medical expenses tax offset under section 159P of the ITAA 1936.