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ATO Interpretative Decision

ATO ID 2001/654 (Withdrawn)

Income Tax
Medical expenses tax offset - amount withheld from a compensation payment for medical expenses previously paid

Attention This ATO ID is withdrawn. Guidance on the Net Medical Expenses Tax Offset can be found at Medical expenses on the ATO website (QC 31918).
Attention This document has changed over time. View its history.

Status of this decision: Decision withdrawn 11 August 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Is the taxpayer entitled to a medical expenses tax offset for the amount withheld by the insurer from a compensation payment for the medical expenses previously paid by the insurer under section 159P of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. The taxpayer is not entitled to a medical expenses tax offset for the amount withheld by the insurer from a compensation payment for the medical expenses previously paid by the insurer under section 159P of the ITAA 1936.

Facts

The taxpayer sustained work related injuries.

The insurer of the taxpayer's employer has been paying the taxpayer's medical expenses.

The insurer was not the taxpayer's agent and the taxpayer did not provide the insurer with funds from which they could make payment for their medical expenses.

The taxpayer accepted a lump sum compensation payment from the employer which extinguished any future liability of the employer.

An amount was deducted from the taxpayer's lump sum compensation payment for the amount of medical expenses that were paid by the employer's insurer.

Reasons for Decision

Section 159P of the ITAA 1936 provides that a taxpayer is entitled to a rebate (medical expenses tax offset) where the taxpayer's net medical expenses (rebatable amount) in the year of income exceed the threshold dollar amount specified in the subsection 159P(3A).

Subsection 159P(1) of the ITAA 1936 requires that in order for an amount to qualify as a rebatable amount it must be a medical expense 'paid by the taxpayer' in respect of themselves or their dependants.

The meaning of the words 'paid by the taxpayer' was considered in Case U223 87 ATC 1231; Tribunal Case 144 (1987) 18 ATR 4055. In that case a taxpayer was injured in an accident and was awarded damages. The insurer of the other party to the action paid the taxpayer's medical expenses and was entitled to a credit for that amount when the damages were awarded. The taxpayer claimed the medical expenses tax offset under section 159P of the ITAA 1936 in respect of the medical expenses paid by the insurer. The Administrative Appeals Tribunal held that the taxpayer was not entitled to the tax offset because the taxpayer did not 'pay' the medical expenses as required by subsection 159P(1) of the ITAA 1936.

The taxpayer's medical expenses were paid by the employer's insurer not by the taxpayer. The taxpayer's lump sum compensation payment was reduced by the amount of these payments so that the taxpayer was not compensated twice. The taxpayer has not 'paid' the medical expenses as required under subsection 159P(1) of the ITAA 1936. The taxpayer is therefore not entitled to a medical expenses tax offset under section 159P of the ITAA 1936.

Amendment History

Date of amendment Part Comment
31 January 2014 Title, Issue, Decision, Facts, Reasons for Decision, Keywords Amended for clarity.
  Case References Amended for style adherence.

Date of decision: 19 October 2001

Year of income:Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1936
   section 159P
   subsection 159P(1)
   subsection 159P(3A)

Case References:
Case U223 / Tribunal Case 144
   87 ATC 1231
   (1987) 18 ATR 4055

Keywords
Compensation for injury
Deductions & expenses
Medical expenses
Medical expense rebates
Rebates and offsets

Siebel/TDMS Reference Number: DW306187;1-8EAG37E

Business Line: Small Business/Individual Taxpayers

Date of publication: 30 November 2001

ISSN: 1445-2782

ATO ID 2001/654 (Withdrawn) history   Top  
   Date   Version 
   19 October 2001   Original statement   
   31 January 2014   Updated statement   
 You are here ®  11 August 2017   Withdrawn   


 


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