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Payments to Medical and Hospital Benefits Funds and Medical Expenses Generally

12.38. The possibility needs to be considered of restricting the concession for medical expenses to amounts in excess of a stated limit, the object being to confine the concession to exceptionally heavy expenses. There are good administrative reasons for adopting such an arrangement: the Commissioner would be relieved of a considerable burden of assessment and verification of claims for deductions. The problem is to fix an appropriate floor. One approach would be to set the limit at a figure somewhat above the average of present claims by taxpayers without dependants. These claims are shown in Table 12.A, combined however with claims by persons with dependants. A floor of perhaps $100 might be appropriate, with a somewhat higher figure under a family unit system if one were available. The approach ought to be acceptable in terms of horizontal equity: if the floor is not too far above the average expenses of taxpayers without dependants, substantial numbers of those with dependants would qualify for the concession. The approach would, however, be open to objections in terms of vertical equity, more especially because, as Table 12.A reveals, claims for medical expenses are markedly correlated with income. Another approach, following Canadian and United States precedents, would be to express the floor as a fraction— say 3 per cent—of taxable income. This might be more equitable vertically but would raise objections in terms of horizontal equity between two taxpayers on the same level of taxable income, one of whom has dependants. It might be possible, however, to lower the floor for the latter taxpayer by adjusting taxable income to allow for dependants.

12.39. The Committee does not express a view as to whether a floor should be adopted. A choice must be made between administrative convenience if there is a floor and a more precise regard for equity if there is not.

12.40. According to one view, medical expenses are non-discretionary in character and therefore should be deducted in determining income subject to tax in the way that expenses in deriving income are deducted. This view, however, pays insufficient regard to the social service character of the concession for medical expenses. The intention is, at least in part, to give assistance to persons who have to meet medical expenses, and it might be thought that assistance should be uniform—as it is when medical services are directly subsidised by government. A compromise solution would be to allow a rebate in respect of expenses qualifying for the concession at a rate of, say, 40 per cent of the amount of the expenses: the high-income taxpayer would receive somewhat less assistance than under the present deduction, the low-income taxpayer somewhat more.

12.41. The Committee does not think that any of the existing claims should be excluded from the concessional treatment, though the precise coverage of some of them calls for comment.

12.42. The item for contributions to medical and hospital benefits funds will become less prominent as a taxpayer expense under the proposed national health insurance scheme. There will, however, be contributions for cover beyond that provided by the proposed health insurance scheme, for example for a higher grade of hospital accommodation or for expenses incurred overseas. The Committee recognises the argument that some of this cover might be thought to be for expenses within the choice of the taxpayer but would not propose to deny the concession. Nor would it propose to deny the concession to the item of payment to doctors and hospitals: while this item will also become less prominent under the new health scheme, there is again a prospect of expenses beyond the cover of the scheme.

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12.43. The item of payments to chemists raises a number of problems. A taxpayer can vouch his claim only when he has kept careful records or this has been done for him by a chemist from whom he makes regular purchases. The compliance cost is thus substantial. The taxpayer may be tempted to estimate a claim, on occasions dishonestly. Another problem concerns the requirement that the purchases in question should have been made from a chemist. It is now commonplace for drugs for the treatment of illness to be available from retailers who are not chemists. A solution to these problems, which has much to commend it, is to retain the restriction that purchases must have been made from a chemist but to limit the purchases attracting the concession to those made on the prescription of a doctor. Here too the choice lies between administrative convenience and a more precise regard for equity, and the Committee does not express a view.

12.44. The limit of the item concerned with payments for medical or surgical appliances prescribed by a doctor has given rise to considerable debate. The principal issue is whether the appliance must be something specific to the taxpayer's treatment, in the sense that it is not useful for any other purpose. Thus a heart pacemaker is specific but an air-conditioner for an asthmatic is not. If it is not necessary for the appliance to be specific, the prospect is open for many ordinary household amenities— even a swimming pool—to attract the concession. The restriction of the concession to appliances that are specific is, in the Committee's view, generally appropriate. If any other appliance is to be brought within the concession, this should be done by express provision. Thus a wig prescribed by a doctor in respect of an illness might be made the subject of such a provision.

12.45. The Committee's attention has been drawn to other expenses which in their purpose have some affinity with those now under consideration. It is not certain under the present law whether contributions to dental insurance funds are deductible in the manner of contributions to medical and hospital benefits funds. Provided the recoupment from the fund is taken into account in determining the net expense attracting the concession, as it is under section 82F in the case of a recoupment from a medical or hospital fund, the Committee sees no reason why a concession should not be available for contributions to dental insurance funds. The terms of the insurance would need to be drafted so that any payment from the fund would be by way of recoupment of a medical expense as defined in the section.

12.46. Payments made to chiropodists, chiropractors, naturopaths and the like in respect of an illness do not at present attract any concession unless for therapeutic treatment by direction of a doctor. Whether payments to any of these practitioners in other circumstances should attract concessions is a matter on which the Committee is not competent to pronounce. It is clear, however, that there would need to be some test of the qualifications of the practitioner. This might best take the form of recognition of those qualifications under statutory provisions in the place where he practises.

12.47. Expenses involved in being transported in a motor vehicle in order to consult a doctor or attend a hospital fail to qualify for a concession. The Committee does not, in general, favour giving a concession, even though such expenses may be a necessary aspect of medical attention and a payment to a doctor for his expenses in travelling to attend the taxpayer clearly qualifies already. The concession could not be so wide as to cover travel where medical purpose is not the sole, even if it be the predominant, purpose: for example, a visit to a city where one purpose is to seek medical advice. Yet it would be impossible to frame an appropriate test to restrict its scope, in an administratively manageable way, when an ordinary vehicle is used. A sole-purpose test

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could not be adopted without letting in a multitude of small claims, and the existence of an emergency—another possible test—is a matter of opinion.

12.48. A different view might be taken when the travel is by ambulance. The use of such a vehicle may be thought a sufficient indication of the sole relevance of the travel to medical attention and the seriousness of the occasion; moreover, the cost involved is readily identifiable. The Committee therefore recommends that section 82F be extended to cover the cost of travel in this way. It would also favour the extension of the section to include subscriptions to ambulance insurance funds, provided the same conditions apply as previously proposed in regard to subscriptions to dental insurance funds.