Medical expenses tax offset - portion of medical expense paid in year of income

Is the total amount incurred on medical expenses used to calculate the taxpayer's entitlement to the medical expenses tax offset (also referred to as a rebate) under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) where those expenses were paid in instalments over more than one year of income?

No. Where medical expenses have been paid in instalments over more than one year of income only the actual amount paid in a particular year of income can be used to calculate the taxpayer's entitlement to the medical expenses tax offset under section 159P of the ITAA 1936 for that income year.

The taxpayer incurred medical expenses during the year of income.

The taxpayer paid a portion of the expenses in the current income year and the remainder was paid in the following income year.

Subsection 159P(1) of the ITAA 1936 provides that an amount paid by a taxpayer in the year of income as medical expenses (reduced by any entitlement to reimbursement from a health fund or government authority) for themselves or a resident dependant, is treated as a rebatable amount.

If the rebatable amount exceeds the threshold dollar amount specified in the legislation in the year of income, the taxpayer is entitled to a medical expenses tax offset of 20% or 10% of the excess over the threshold amount.

Subsection 159P(1) of the ITAA 1936 specifically states that the amount of medical expenses must be paid to be treated as a rebatable amount.

Although the taxpayer has incurred the medical expenses during the year of income, the taxpayer has only paid a portion of those expenses. Consequently, the taxpayer can only use the portion of those medical expenses actually paid for the purposes of calculating their entitlement to the medical expenses tax offset under section 159P of the ITAA 1936. Note: the balance of unpaid medical expenses will be treated as a rebatable amount for the purposes of the medical expenses tax offset in the year(s) of income that they are actually paid. From 1 July 2015 the tax offset is only available for medical expenses relating to disability aids, attendant care or aged care. The offset is being phased out and will not be available after 30 June 2019.

Date of Amendment Part Comment 8 January 2016 Issue, Facts Amended to reflect legislative changes. Reasons for Decision Updated reference to the amount of the offset available. Added note about phasing out of medical expenses tax offset.

Date of Amendment | Part | Comment

8 January 2016 | Issue, Facts | Amended to reflect legislative changes.

Reasons for Decision | Updated reference to the amount of the offset available. Added note about phasing out of medical expenses tax offset.