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Edited version of your written advice
Authorisation Number: 1012812376357
Ruling
Subject: Medical Expenses
Question 1
Can you claim a medical expense rebate for surrogate expenses?
Answer
No.
This ruling applies for the following period(s)
Year ended 30 June 20XX
The scheme commences on
1 July 20XX
Relevant facts and circumstances
You and your spouse have been trying to start a family for a number of years without success.
Your relative became a surrogate for you and your spouse.
You paid for legal expenses in relation to the surrogacy.
You paid for medical and hospital expenses regarding the pregnancy and the birth.
You claimed a medical expense rebate in 20XX and therefore are eligible to claim the medical expenses rebate in 20XX.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 159P(1)
Income Tax Assessment Act 1936 Subsection 159P(4)
Reasons for decision
A medical expenses tax offset is available to a taxpayer under subsection 159P(1) of the Income Tax Assessment Act 1936 (ITAA 1936) where the taxpayer pays medical expenses in an income year for themselves or a dependant who is an Australian resident, to the extent that they are not reimbursed, or are eligible to be reimbursed, from a government or public authority or a society, association or fund.
Paragraph (a) of the definition of medical expenses in subsection 159P(4) of the ITAA 1936 includes payments made to a legally qualified medical practitioner in respect of an illness or operation.
Taxation Ruling IT 2359 provides that infertility is an illness within the ordinary meaning of the term and expenses associated with overcoming that illness are medical expenses.
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.
In this case, as your relative is not considered to be your dependant, the medical expenses have not been paid in respect of a dependant as defined in subsection 159P(4) of the ITAA 1936. Additionally the costs of legal expenses are not considered to be medical expenses as per the definition in Paragraph (a) in subsection 159P(4) of the ITAA 1936.
Therefore, you cannot include any of the costs involved in the surrogacy as part of your calculation for the medical expenses tax offset.