Edited version of your written advice

Authorisation Number: 1013140457875

Date of advice: 19 December 2016

Ruling

Subject: Medical offset

Question 1

Does the interest paid on a bank loan to finance an accommodation bond payable to an approved aged care provider qualify as a medical expense for the purposes of calculating your entitlement to a medical expenses tax offset?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 201X

The scheme commences on:

01 July 201X

Relevant facts and circumstances

Your spouse requires residential aged care.

You obtained a loan to finance the bond required to enter the aged care accommodation.

You incur interest on the loan.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 159P

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 you pay certain medical expenses in an income year for yourself or a dependant who is an Australian resident, to the extent that you are not reimbursed, or are eligible to be reimbursed, from a government or public authority or a society, association or fund.

The net medical expenses tax offset is being phased out.  The tax offset will cease on 30 June 2019.

2015-16 eligible expenses

Expenses that can be claimed are restricted to disability aids, attendant care or aged care for the 2015-16 financial year.  Expenses do not include contributions to a private health insurer or travel or accommodation expenses associated with other categories of medical expenses.

Subsection 159P(1B) of the ITAA 1936 states that:

For the 2013-14 to 2018-19 years of income, an amount that would otherwise be paid as medical expenses is treated as not being paid as medical expenses unless the payment:

(a) relates to an aid for a person with a disability; or

(b) relates to services rendered by a person as an attendant of a person with a disability; or

(c) relates to care provided by an approved provider (within the meaning of the Aged Care Act 1997) of a person who:

(i) is approved as a care recipient under that Act; or

(ii) is a continuing care recipient within the meaning of that Act.

In your case, your spouse has been assessed and approved as a care recipient and is receiving care provided by an approved provider. The home is an approved care provider.

However, in your case, ATO ID 2006/251 states that interest payable on an accommodation bond to an age care facility is a medical expense for the purposes of subsection 159P(4) of the ITAA 1936. The situation presented in ATO ID 2006/251 is where the taxpayer paid the accommodation bond in instalments and the age care facility charged interest on the outstanding amounts. As it was the aged care facility who was the recipient of the interest payments the requirement of the payment being made to a public or private hospital was met.

Your case differs to that presented in ATO ID 2006/251 as you are making payments to a bank and not to the aged care facility. It is considered that a payment of interest to a financial institution is not a payment in respect of an illness. Instead it is a payment for the use of the borrowed funds.

As stated above the interest payments to the bank on the loan are not payments to a public or private hospital in respect of an illness and therefore do not qualify as medical expenses under subsection 159P(4) of the ITAA 1936. As such they cannot be included in determining your entitlement to, or the amount of, a medical expenses tax offset.