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Means testing the Net Medical Expenses Tax Offset

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As we highlighted in our Budget 2012 update, from 1 July 2012 the Net Medical Expenses Tax Offset became subject to a means test and the rate was reduced for high-income earners.

 Net Medical Expenses Tax OffsetThe offset is available for eligible medical expenses that you have paid for yourself and your dependants, less any refunds you have received (or could receive) from Medicare or a private health insurer.

The changes to the offset introduced in the budget affect taxpayers with an adjusted taxable income above the Medicare Levy Surcharge threshold – $84,000 for singles and $168,000 for families and couples. The family threshold increases by $1,500 for each dependent child after the first.

Taxpayers with taxable income greater $300,000 will be able to claim only 10% (down from 20%) of their eligible out-of-pocket expenses incurred in excess of $5,000 (indexed annually) during a financial year. There is no upper limit on the amount you can claim.

Taxpayers with an adjusted taxable income below the Medicare Levy Surcharge threshold will be unaffected, and can continue to claim a reimbursement of 20% for net medical expenses over $2,120 when they lodge their tax return.

Medical expenses include payments:

  • to dentists, orthodontists or registered dental mechanics

  • to opticians or optometrists, including for the cost of prescription spectacles or contact lenses

  • for therapeutic treatment under the direction of a doctor

  • for medical aids prescribed by a doctor

  • for laser eye surgery

  • for treatment under an in-vitro fertilisation program.

Expenses that do not qualify as medical expenses include payments made for:

  • cosmetic operations for which a Medicare benefit is not payable

  • dental services or treatments that are solely cosmetic

  • therapeutic treatment for patients who are not formally referred by a doctor

  • chemist-type items, such as tablets for pain relief, purchased in retail outlets or health food stores and purchases from a chemist that are not related to an illness or operation

  • inoculations for overseas travel

  • non-prescribed vitamins or health foods

  • travel or accommodation expenses associated with medical treatment

  • contributions to a private health insurer

  • life insurance medical examinations

  • ambulance charges and subscriptions

  • funeral expenses.

The changes to the Net Medical Expenses Tax Offset represent a double blow when combined with the cuts to the Private Health Insurance Offset for high-income individuals and families.

To assist you in claiming your full Net Medical Expenses Tax Offset, keep details of medical expenses that you and your dependents have incurred, as well as refund entitlements from Medicare or your private health insurer. You can also request an itemised statement from Medicare, your private health insurer and chemists who have filled your prescriptions.

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