Medical Expenses tax offset - trustee pays medical expenses

Is the trustee taxpayer entitled to claim a medical expenses tax offset under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) for medical expenses paid by the trustee from the beneficiary's distribution of trust income?

Yes. The trustee taxpayer is entitled to claim a medical expenses tax offset under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) for medical expenses paid by the trustee from the beneficiary's distribution of trust income.

The trust paid an amount of medical expenses on behalf of the beneficiary. The amount was paid from the beneficiary's distribution from the trust.

The trustee of the trust estate was assessed under section 98 of the ITAA 1936 in respect of the trust income, to which the beneficiary was presently entitled, for the income year.

The net medical expenses, after reimbursements from health funds and Medicare, exceeded $1250 for the income year.

The beneficiary did not claim a medical expense tax offset in their personal income tax return for the medical expenses paid by the trust on their behalf.

A medical expenses tax offset is available to a taxpayer under section 159P of the ITAA 1936, where the taxpayer incurs medical expenses for themselves or for a dependant who is an Australian resident. The medical expense 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 $1250. The tax offset is 20% of the amount by which the net medical expenses exceed $1250.

Subsection 159P(3) provides that amounts paid by a trustee out of a beneficiary's trust distribution as medical expenses in respect of that beneficiary are medical expenses for the purpose of section 159P of the ITAA 1936. Where the trustee is assessed under section 98 of the ITAA 1936 in an income year, the trustee may claim the tax offset in respect of those payments. Where the beneficiary is assessed on the trust income, the beneficiary may claim the tax offset in respect of those payments.

The trustee taxpayer was assessed under section 98 of the ITAA 1936 in the income year. As the net medical expenses for the income year exceeded $1250, the trustee taxpayer is entitled to a medical expense tax offset under section 159P of the ITAA 1936.