Edited version of private advice

Authorisation Number: 1012627274779

Ruling

Subject: Medical expense tax offset

Question and answer:

Do the expenses that you have incurred on behalf of your dependant qualify as a medical expense for the purposes of the medical expense tax offset?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are a resident of Australia for income tax purposes.

You have a dependant who is under 25 years of age.

Your dependant moved overseas to commence full time study for a number of years.

The course that your dependant is undertaking is not offered in Australia.

On completion of the course your dependant is expected to return to Australia.

While your dependant has been overseas, you have been maintaining them by paying for their accommodation, meals, travel expenses, course fees etc.

While overseas your dependant developed an illness.

Your dependant is receiving on going treatment for this condition from an overseas registered medical practitioner.

You have incurred medical expenses as a result of this treatment.

Your dependant's details

Your dependant was born in Australia and is a citizen of Australia.

Your dependant departed Australia to commence a course of study overseas.

Your dependant arrived in country Y on a visa that allows them to remain in country Y temporarily.

Since departing Australia your dependant returned to Australia on one occasion for a number of months for the purpose of receiving treatment.

While in country Y your dependant lives in student accommodation on the university campus.

Your dependant has not earned any income, been employed or lodged any income tax returns in the country Y.

Your dependant does not possess any assets in the country Y.

Your dependant's assets in Australia consist of household items and a bank account.

Your dependant's sporting and social connections in Australia consist of family and friends.

Your dependant's sporting and social connections in country Y consist of university friends.

Your dependant has never been a Commonwealth of Australia employee.

Your dependant is not on the electoral role, does not have any investments in Australian companies or have any significant savings.

Your dependant stated on their immigration outgoing card that the reason for their departure was for the purpose of study.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Section 159P

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision

A medical expense tax offset is available to a taxpayer under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936), where the taxpayer pays medical expenses for themselves or a dependant who is an Australian resident. 

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. It is not necessary that the payments be paid in Australia.

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 given threshold amount in an income year.  

To be entitled to the medical expenses tax offset for expenses incurred on behalf of a dependant, the dependant must be as defined in subsection 159P(4) of the ITAA 1936. In your case included under subsection 159P(4) of the ITAA 1936 is a student aged under 25 years who you maintained in a given income year.

Your circumstance

You have a child who is under 25 years of age and engaged in full time study that you have been maintaining. Your child has sustained an illness and has been receiving on going treatment from a registered medical practitioner. You have incurred expenses as a result of these treatments. In light of the above, the expenses that you have incurred qualify as a medical expense for the purpose of the medical expense tax offset.

While it is acknowledged that your child is a dependant, to enable you to be entitled to include a medical expense in your medical expense tax offset calculation, the expense must be paid by a resident taxpayer in respect of themselves or a resident dependant.

As your dependant is undertaking full time study overseas, we need to consider whether they are an Australian resident for income tax purposes.

Residency

An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936.  The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes.  These tests are:

• the resides test

• the domicile test

• the 183 day test

• the superannuation test.

The first two tests are examined in detail in TAXATION RULING NO. IT 2650 INCOME TAX: Residency - Permanent Place of Abode Outside Australia.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. 

However, where an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

From the information that you have provided your dependant is a resident of Australia for income tax purposes for the years included in this ruling

Conclusion

You and your dependant are both residents of Australia for income tax purposes. You have been maintaining your dependant who is under the age of 25 and is undertaking fulltime study overseas. During this period you have incurred medical expenses on behalf of your dependant who has sustained an illness. The expenses that you have incurred are for the treatment of this illness that has been administered by a registered medical practitioner.

Accordingly, you are entitled to include these expenses in your income tax return for the purposes of calculating your medical expense tax offset, under section 159P of the ITAA 1936.