Edited version of private advice

Authorisation Number: 1012630861177

Ruling

Subject: Medical expenses tax offset - high needs residential care

Question

Do the fortnightly payments you make for high needs residential care qualify as an eligible medical expense for the purposes of the medical expenses tax offset?

Answer

Yes.

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.

Your spouse has been diagnosed with a degenerative condition and requires twenty-four-hour-a-day high-needs residential care.

The facility your spouse resides in provides full-time nursing care with additional services for rehabilitation and wellbeing.

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)

Income Tax Assessment Act 1936 paragraph 159P(4)(a)

Reasons for decision

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. This includes any financial assistance received under a State/Commonwealth government funded program.

The amount of net medical expenses tax offset you can claim now depends on your level of income as the rebate is now income tested. This not only affects the threshold amount but also the percentage of the rebate you can claim. It should also be noted that the threshold amount is subject to indexation and will change in future income years.

In order to claim the tax offset, the expenditure must fall within the definition of 'medical expenses' as contained in subsection 159P(4) of the ITAA 1936. Therefore, we have to determine whether the payments you have made qualify as medical expenses for the purposes of the medical expense tax offset.

Paragraph (a) of the definition of 'medical expenses' under subsection 159P(4) of the ITAA 1936 includes payments made to a public or private hospital in respect of an illness or operation.

The term 'hospital' is not defined for the purposes of section 159P of the ITAA 1936. It therefore has its ordinary meaning. The Macquarie Dictionary defines 'hospital' as 'an institution in which sick or injured persons are given medical or surgical treatment'.

It is accepted that the nature of care provided to a high-level care recipient may be characterised as being in relation to an 'illness' because such care is necessarily provided to someone whose condition is not that of a healthy state.

It is considered the facility in which your spouse resides qualifies as a hospital for the purposes of the medical expense tax offset as they provide accommodation and approved personal care services to people with high care needs.

Therefore, the fortnightly payments you make for full-time high needs residential care are considered to be eligible medical expenses for the purposes of the medical expenses tax offset and you are entitled to include these payments in your calculation of the medical expenses tax offset.