Medical expenses tax offset - 'rebatable amount'

Is the taxpayer required to reduce the amount claimed as a medical expense under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) by the full amount of a health fund payment where that payment is made by instalments payable in the current and a number of future income years?

Yes. The taxpayer is required to reduce the amount claimed as a medical expense under section 159P of the ITAA 1936 by the full amount of a health fund payment where that payment is made by instalments payable in the current and a number of future income years.

The taxpayer suffers from a medical disorder.

The taxpayer incurred medical expenses as defined in subsection 159P(4) of the ITAA 1936 in obtaining treatment for their disorder.

The taxpayer is a member of a health insurance fund.

The taxpayer will be paid an amount by the health insurance fund in respect of those medical expenses incurred. That amount will be paid by instalments spread over the current and a number of future income years.

Subsection 159P(3A) of the ITAA 1936 provides that a medical expenses tax offset is allowable to a taxpayer whose 'rebatable amount' in the year of income exceeds $1250.

Subsection 159P(1) of the ITAA 1936 provides that the 'rebatable amount' is the amount of the medical expenses less any amount which the taxpayer is entitled to be paid in respect of those medical expenses. The payment to be received includes amounts received from a health insurance fund.

For the purposes of subsection 159P(1) of the ITAA 1936 the taxpayer is still entitled to the full refund from the health insurance fund even where it is payable at a later date by instalments.

The taxpayer must therefore deduct the full amount of the payment they are entitled to receive from the health insurance fund in respect of the medical expenses incurred and use only the net amount for the purposes of calculating the medical expenses tax offset.