Edited version of your private ruling

Authorisation Number: 1012516948459

Ruling

Subject: Tax offset - medical expenses

Question

Are you entitled to include the costs paid to a company for a carer when calculating your medical expenses tax offset?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You are bed-ridden and require 24 hour medical care.

You receive this care in your normal residence.

You use two different companies to provide you with the care you require.

You incurred a total of $X in medical expenses.

Your adjusted taxable income for the year will be above $84,000.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 159P.

Reasons for decision

A medical expenses tax offset is available under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936), where you incur medical expenses in an income year for yourself or a dependant who is an Australian resident. The medical expense 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 $5,000 if you are a single and your adjustable taxable income is $84,000 or above. The medical expenses tax offset is 10% of the amount by which the net medical expenses exceeds $5,000.

The term 'medical expenses' is defined in paragraph 159P(4)(h) of the ITAA 1936 to include payments made 'as remuneration of a person for services rendered by him as an attendant of a person who is blind or permanently confined to a bed or an invalid chair.'

Where the payment is made to another entity, the only amount which will qualify for the tax offset is the amount that represents the remuneration of a person for their services as an attendant or carer. For example if the entity providing the care includes administration costs as part of the total cost for their services then the administration costs would not qualify as medical expenses.

Paragraph 159P(4)(h) of the ITAA 1936 does not require that the payment be made 'to' a specific person but rather that it be paid 'as' remuneration 'of' a person for the services they provide as an attendant. There is no requirement therefore that the payment be made directly to the person who provides the care.

This interpretation has been supported in the Small Taxation Claims Tribunal, in [2001] AATA 944 (Unreported, Senior member MD Allen, 15 November 2001). In that case the Tribunal allowed a taxpayer a medical expenses tax offset in respect of expenses paid to a company that provided carers. The rebatable amount only included payments actually made by the company to the carers. The portion of the expenses that was retained by the company for administrative services was not included as part of the rebatable amount.

In your case, as you are permanently confined to a bed the payments to the nursing agency made in respect of the personal care, are medical expenses under Paragraph 159P (4) (h) of the ITAA 1936.

Accordingly, you are entitled to include the payments made to a company for the provision of a carer, to the extent that the payments represent remuneration of a person for their services as a carer, when calculating your medical expenses tax offset under section 159P of the ITAA 1936.