Understanding the medical expenses tax offset

The Net Medical Expenses Tax Offset allows taxpayers to offset the cost of substantial out-of-pocket medical expenses against their taxable income in a given year.

It was announced in the 2013 Budget that the NMETO was to be abolished and that change has recently been passed into law. The offset will disappear by the end of the 2018-19 income year, with some interim transitional arrangements put in place between now and July 1, 2019.

By way of background, the NMETO previously allowed an offset of 20% of net medical expenses over $2,120 for:

Single taxpayers with adjusted taxable income of $84,000 or less.

Families with a combined adjusted taxable income of $168,000 or less.

For taxpayers with income over these thresholds, the offset was 10% of net medical expenses over $5000. Between now and the abolition date, transitional arrangements are in force. These basically state that only those who claimed NMETO in 2012-13 will be eligible to claim the offset in the 2013-14 income year. Similarly, only those who claimed the NMETO in 2013-14 will be able to claim it in the 2014-15 income year.

All other taxpayers (ie, those who made no previous claims and those looking to claim in 2015-16 onwards) will be restricted to out-of-pocket expenses over the eligibility threshold incurred on disability aids, attendant care or aged care only. All other medical expenses are excluded. The narrow scope of these transitional arrangements is likely to mean that for the majority of taxpayers, the NMETO is no longer available.

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