Edited version of your private ruling

Authorisation Number: 1012517077871

Ruling

Subject: Medical expense tax offset

Question 1

Are the following expenses eligible medical expenses for the purposes of the medical expense tax offset?

§ Neo-natal care

§ On-going medical checks after discharge from hospital for your dependant

§ Medicine purchased for your dependant

Answer

Yes.

Question 2

Are the following expenses eligible medical expenses for the purposes of the medical expense tax offset?

§ In-vitro fertilisation (IVF) treatment for the surrogate

§ the ongoing medical costs of the surrogates pregnancy

§ the medical costs for the surrogate in relation to the birth

§ Medicine purchased for the surrogate

§ DNA testing

§ Citizenship by descent application fee

§ Australian passport application fee

§ Travel costs and incidentals

Answer

No

This ruling applies for the following period

Year ended 30 June 2013

The scheme commences on

1 July 2012

Relevant facts and circumstances

You and your spouse are Australian residents for tax purposes.

Due to continuing problems with infertility and several unsuccessful rounds of IVF treatment, you and your spouse decided to try to conceive a child through the services of a surrogate overseas.

The IVF treatment resulted in a viable pregnancy.

You were responsible for the expenses of the surrogate in respect of:-

§ the IVF treatment for the surrogate

· the medical costs of the surrogates pregnancy

· the medical costs of the surrogate in relation to the birth

· Medicine purchased through a chemist/pharmacy/hospital for the surrogate

The treatment was delivered by a legally qualified medical practitioner.

All payments were made to a legally qualified medical practitioner, hospital and chemist/pharmacy.

You paid for medical expenses in respect of your dependants:-

· Neo-natal care

· Your dependants on-going medical checks after discharge from hospital

· Medicine purchased for your dependant

All payments were made to a legally qualified medical practitioner, hospital and chemist/pharmacy.

Before travelling overseas you paid for a DNA test. This test was requested by the department to confirm that you were the biological parent of the child for immigration and citizenship purposes.

The application for citizenship was approved and you received the 'Citizenship by Decent' certificate. You then applied for an Australian passport for your child. You paid fees in relation to these applications.

You also paid for travel costs and incidentals for you and your dependants.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 159P

Income Tax Assessment Act 1936 Subsection 159P(1)

Income Tax Assessment Act 1936 Subsection 159P(4)

Reasons for decision

Medical expenses tax offset

A medical expenses tax offset is available under subsection 159P(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer pays eligible medical expenses in an income year for themselves or a dependant who is an Australian resident.

The medical expenses tax offset is only available if the amount of medical expenses, after being reduced by any entitlement to reimbursement from a health fund or government authority such as Medicare, exceeds the threshold amount.

The amount of net medical expenses tax offset you can claim will now depend on your level of income.

You will be able to claim an offset of 10% of your net medical expenses over $5,000 if you have an adjusted taxable income (ATI) above:

· $84,000 if you are single, or

· $168,000 if you are a couple or family

The family threshold will increase by $1,500 for each dependent child after the first.

If your ATI is below these income thresholds, you are not affected by this change and can continue to claim an offset of 20% of your net medical expenses over the relevant threshold amount.

For the 2012-13 financial year the threshold amount is $2,120. Please note that the threshold amount is subject to indexation and will change in future income years.

In order for a medical expense to be treated as a rebateable medical expense, the expense must fall within the definition of 'medical expenses' as contained in subsection 159P(4) of the ITAA 1936.

Based on your circumstances, paragraph 159P(4)(a) of the ITAA 1936 would be the only provision where your expenses can be considered to qualify as medical expenses.

The term 'medical expenses' is defined in paragraph 159P(4)(a) of the ITAA 1936, for the purposes of the medical expense tax offset, to includes payments made to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation.

Therefore, we have to determine whether the payments you have made qualify as medical expenses for the purposes of the medical expense tax offset.

Each of the expenses will be examined separately to determine if they are eligible medical expenses.

IVF and ongoing medical costs in relation to surrogate

Taxation Ruling IT 2359 accepts that IVF procedures are procedures in respect of the illness of infertility, and that payments to a legally qualified medical practitioner or a hospital for treatment under an IVF program qualify as medical expenses under subsection 159P(4) of the ITAA 1936.

However, subsection 159P(1) of the ITAA 1936 provides that the medical expenses must be paid in respect of the taxpayer, or a dependant of the taxpayer, to qualify for the medical expenses tax offset.

A 'dependant' is defined in subsection 159P(4) of the ITAA 1936 as:

· the spouse of the taxpayer; or

· a child of the taxpayer who is under 21 years of age; or

· a person for whom the taxpayer is entitled to a dependants rebate, or a child or student in respect of whom the taxpayer qualifies for a notional dependants rebate.

As the surrogate is not considered to be a dependant, the medical expenses have not been paid in respect of a dependant as defined in subsection 159P(4) of the ITAA 1936.

Therefore, you cannot include any of the costs paid in relation to the surrogate as part of the calculation for the medical expenses tax offset.

Medical expenses in relation to the children

A child of a taxpayer who is under 21 years of age falls under the definition of a dependant as defined in subsection 159P(4) of the ITAA 1936.

Therefore, the costs you have paid in relation to the neo natal care, the on-going medical checks and medications are considered to be eligible medical expenses for the purposes of the medical expense tax offset and can be used in determining your eligibility for the medical expenses tax offset.

Travel costs

Travel, accommodation and meal expenses associated with medical treatment are not eligible medical expenses as the payments are not made to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital.

Therefore, you cannot include any of your travel and incidental costs in your calculation of the medical expense tax offset.

DNA testing for immigration and passport and citizenship applications

The DNA testing was requested by the Department of Immigration and Citizenship for immigration and citizenship purposes and was not ordered by a legally qualified medical practitioner in relation to the treatment of an illness or condition.

The amounts you have paid for the DNA testing, and the application fees for the registration of your child as an Australian citizen by descent and Australian passport application are not eligible medical expenses for the purposes of the medical expense tax offset and cannot be used in your calculation of the medical expense tax offset.