Medical expenses: What can you claim?

Changes announced in the latest Federal Budget mean that from July 1, 2012, the Net Medical Expenses Tax Offset will have two income-based thresholds, both indexed annually. A lower threshold ($2,060 for 2011-12) applies to individuals with an annual taxable income of less than $84,000 and less than $168,000 for couples and families, and a higher threshold ($5,000) applies to those earning more.

Net medical expenses are the total amount spent on medical expenses minus any reimbursements paid by private health insurance or Medicare. You and your dependants must be Australian residents for tax purposes, but you can claim medical expenses paid while travelling overseas.

Once net medical expenses are more than the thresholds above, a taxpayer is eligible to claim the offset. Those with a threshold based on the lower income amount are able to claim 20% of expenses over the threshold, but those required to pass the higher threshold can only claim 10% of the excess.

In fact when you combine some other health-related financial factors, it will certainly pay to stay healthy going forward. Apart from already increased private health insurance premiums, anyone with a situation that sees them incurring higher medical costs plus exceeding certain income levels has the potential to be hit three ways:

  1. a reduced and means-tested private health insurance rebate
  2. a higher threshold to pass before being able to claim medical expenses
  3. a halving of the amount that can be claimed once that threshold is reached.

Who is covered for claims

The tax offset can only be claimed for:

  • you, your spouse or de facto
  • children up to age 21, including adopted and stepchildren, regardless of their income; also other under-21-year-olds under some circumstances (check this with our office)
  • child-housekeeper, invalid relative, parent or spouse’s parent, but only if you can claim a tax offset for them.

Expenses that are eligible for the offset

The medical expenses that are covered include those made:

  • to a medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation
  • for dental services or treatment, supply, alteration or repair of artificial teeth
  • for therapeutic treatment by referral from a medical practitioner (such as physiotherapist, speech therapist)
  • for the purchase or repair of an artificial limb, artificial eye, or hearing aid
  • for purchase or repair of prescribed medical aids
  • for the testing of eyes, the prescribing of lenses, or for the supply or repair of spectacles
  • to a person who looks after someone who is blind, or confined to bed or a wheelchair
  • to keep a trained guide dog to assist a blind person, the hearing impaired or other disabled individuals.

Expenses that are not eligible for the offset

Some popular treatments, procedures or situations do not fall within the offset’s ambit, including:

  • Healing and curing therapy. There are however occasions where your doctor might recommend you receive therapeutic treatment for what ails you. In this circumstance, your doctor should provide you with a referral to a specific practitioner. Without a referral, the cost of the treatment will not be an eligible expense
  • Sorry, no nips or tucks. Procedures that are solely for cosmetic or beauty purposes that alter a person superficially are not eligible for the rebate. Of course, there are some legitimate cosmetic procedures that do qualify – reconstructive surgery following an accident or operation, for example. The first step to find out what is, and is not, claimable is to see if a procedure is covered by a Medicare benefit.
  • Travelling. If you’re travelling to a country that requires some vaccinations beforehand, you will not be able to claim this expense.

Some other treatments that are not covered include:

  • medical examinations for life insurance
  • chemist-type items, such as tablets for pain relief
  • non-prescribed vitamins or health foods
  • accommodation or transit expenses associated with medical treatment
  • contributions to a private health fund
  • ambulance charges and subscriptions, and
  • funeral expenses.

Nursing homes or hostels

Aged care facilities provide specialised medical care for the elderly, and some costs are covered by the Net Medical Expenses Tax Offset. You can claim payments made to nursing homes or hostels for permanent or respite care if the payments were for personal or nursing care, not just for accommodation.

An approved care recipient’s residential aged care payments usually include an amount for personal or nursing care if the recipient has been assessed by an ‘aged care assessment team’ (ACAT). Payments for respite care qualify for the tax offset on the same basis as residential care. To be approved, the recipient needs to be assessed by an ACAT to determine which services they may be eligible for.


Where eligible, the tax offset can be claimed for:

  • basic daily fees
  • income-tested daily fees
  • extra service fees
  • some accommodation charges
  • amounts drawn from accommodation bonds that were paid as a lump sum
  • periodic payments of accommodation bonds.

Note that retirement home payments are not included in the offset, only payments to nursing hostels or homes for respite or permanent care. It also does not apply to:

  • payments for people who have either been assessed as requiring the lowest level care, or who have not been ACAT assessed
  • lump sum payments of accommodation bonds
  • interest derived by care providers from the investment of accommodation bonds (as these are not payments for residential aged care).