Frequently Asked Questions

What is the difference between a tax rebate and a tax deduction?
How does the medical rebate work?
Who is eligible for the medical rebate?
What expenses are eligible for the medical rebate?
Example

What is the difference between a rebate and a tax deduction?

A tax deduction reduces the amount of your taxable income. The taxation office uses this net taxable income to calculate how much tax you have to pay. If we assume that you pay tax at the marginal rate of 30%, every $1 in tax deductions will save you 30c in tax. A rebate, on the other hand is deducted straight from the amount of tax you have to pay. Whatever your tax rate, every $1 in tax rebates will save you $1 in tax.

How does the medical rebate work?

The medical expenses rebate is available to a taxpayer whose net medical expenses in the year of income exceed $1,250 (ITAA36 sec 159P). The amount of the rebate is 20% of the excess over $1,250.

Who is eligible for the medical rebate?

To qualify for the rebate, the medical expenses must be paid by a resident taxpayer (ITAA36 sec 159H), in respect of him or herself or a resident dependant. A dependant is defined to mean: a) the legal or de facto spouse of the taxpayer; b) a child of the taxpayer who is under 21; c) a person for whom the taxpayer is entitled to a dependants rebate, or a child or student in respect of whom the taxpayer is entitled to a notional dependants rebate.

What expenses are eligible for the medical rebate?

Medical expenses are payments to legally qualified medical practitioners, nurses, chemists, opticians, and optometrists. In order to qualify for the rebate, the payments must be in respect of an illness or an operation. An illness is defined as any marked deviation from the normal healthy state, i.e. any disorder of body function or systems. Since 1 July 2006 taxation rebates do not apply to cosmetic procedures unless they carry a Medicare item number.

Payments to a dentist for dental services or treatment, or for the supply, alteration or repair of artificial teeth, also qualify for the rebate. As well, the rebate can cover payments to para medical professionals for therapeutic treatment, and medical or surgical appliances.

Medical expenses do not qualify for the rebate for the part that they are reimbursed, or are eligible to be reimbursed, from Medicare or a Health Insurance Fund.

Example

Jenny has medical expenses of $5,000 during the financial year. She is a member of a health fund which reimburses her $300. Jenny's net medical expenses are $4,700 ($5,000 - $300). She is entitled to a medical rebate of ($4,700 - $1,250) x 20% = $690.

This article is meant to convey general information regarding the contents of the Australian Income Tax Assessment Act dealing with rebates for medical expenses in force at the end of financial year 2002. While it is meant to educate, it is by no means exhaustive. Individual circumstances may vary, and taxation laws may change. It is suggested that you consult a qualified accountant in order to determine to what extent a medical rebate will apply to your situation.