Announced on the 8th of May 2012, the government announced in the budged that for the 2012-13 financial year and onwards, the medical expense offset will now be means tested. We have described below the changes to the medical expense tax offset as well as provided 2 examples of a builder with income less than $84,000 and an accountant with a property in the eastern suburbs of Melbourne.
Clients with an adjusted taxable income of more than $84,000 for singles or $168,000 for couples will be affected. Those families with dependent children will also have a $1500 increase in their threshold per child.
For those taxpayers with income below the thresholds, you can continue to claim a 20% tax offset for medical expenses that are in excess of $2120 when you lodge your return with your accountant.
For those taxpayers with income above the thresholds, you can still claim a medical expense offset but it will be subject to new thresholds. You can claim a 10% tax offset for medical expenses that are over $5000.
What is Adjusted Taxable Income?
Your adjusted taxable income is not the same as your taxable income. Basically, adjusted taxable income includes:
- Taxable Income
- Fringe Benefits
- Government Pensions that are tax free
- Reportable superannuation contributions
- Add back of investment losses
Less: child maintenance expenditure
Example 1: Net medical expenses of single taxpayer earning less than $84,000
In the 2012-13 year, a builder in the eastern suburbs of Melbourne had an adjusted taxable income of $70,000. He had medical expenses of $4000 for himself and his family. He is entitled to a rebate of $376 [(4000-2120)x20%].
Example 2: Net medical expenses of a single professional earning more than $84,000
In the 2012-13 year an accountant had a taxable income of $80,000. He also owned an investment property in the eastern suburbs of Melbourne with a loss of $10,000. Because his adjusted taxable income is $90,000, he will need to spend at least $5000 out of pocket before he can commence claiming a 10% offset for the amount in excess of this.
Hillyer Riches is a specialist accounting, business advisory and smsf firm located in Melbourne. We service areas in the eastern suburbs of Melbourne such as, Caulfield, Camberwell & Malvern. For more information email an accountant at hilric@hillyerriches.com.au or phone us on 03 9571 5333.
This article is for general information only and s
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