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Net Medical Expense Tax Offset phase-out now law

Posted on December 12, 2018

Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014

This Bill received Royal Assent on 18 March 2014.

Amongst other things, the legislation will phase out the Net Medical Expenses Tax Offset (NMETO) by the end of the 2018-19 income year.

Background

The NMETO for the 2012-13 income year allows an offset of 20% of net medical expenses over $2,120 for:

P single taxpayers with adjusted taxable income for rebates of $84,000 or less, and
P families with a combined adjusted taxable income for rebates of $168,000 or less.

For taxpayers with adjusted taxable income for rebates over these income thresholds, the offset is 10% of net medical expenses over $5,000.

How will the NMETO phase-out work?

The phase out of the NMETO will occur through two sets of transitional arrangements. These arrangements are summarised below:

P Category A: From the 2013-14 income year until the end of the 2018-19 income year: Taxpayers can only claim the NMETO for medical expenses that both meet:–the current definition and eligibility requirements, and –relate to disability aids, attendant care or aged care.
P Category B: For the 2013-14 income year and 2014-15 income year: Taxpayers will be eligible to claim the full range of medical expenses (as defined currently) but only if they have received an amount of the NMETO in the previous income year (or in both 2012-13 and 2013-14 in respect to claims in the 2014-15 income year).

The NMETO is repealed from 1 July 2019.

Comment
These amendments are made following an announcement made by the former government in the 2013-14 Federal Budget.

The phasing out of the NMETO makes it more onerous for taxpayers to access the offset in addition to the means testing which currently applies (either as an individual or family unit).
It would be necessary for practitioners to familiarise themselves with the new requirements.

This is particularly the case for claims made in the 2013-14 and 2014-15 income years where the taxpayer has not previously claimed the NMETO in the previous income year and is required to rely on the’ Category A’ transitional requirements.

Under the ‘Category A’ rules, the terms ‘disability aids’, ‘attendant care’ and ‘aged care’ are specifically defined under the amendments. Examples of such expenditure are contained in the Explanatory Memorandum to the Bill.

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