Know Your Tax Offsets: Net Medical Expenses Over Threshold

Alan and I have three beautiful children ages 4, 6 and 8. Let's face it; children are expensive! Keeping track of some of these expenses can pay off when tax time comes around.

The Tax Office has found that many people are still not taking advantage of a large number of rebates.

20% Tax Offset on net medical expenses over the threshold

One of the most common areas people fail to take advantage is the medical expenses offset. This applies to out-of-pocket expenses (so deduct refunds from Medicare or your health insurer) over the $1,500 threshold. It sounds a lot but it is shockingly simple to reach that amount, especially with a young family or elderly dependents.

Who's included?

The offset applies to you and your dependants. If your household spent over the threshold on unreimbursed medical, you may be able to claim this offset.

What medical expenses count?

Medical expenses can include things like visits to your doctor, hospital, optical, dental, referred physio, prescription medication and even some counselling services.

How much will it be?

The offset amounts to 20% of the amount over the threshold. For instance, if our family had $4,000 of net medical expenses for the year, our offset would be $500 (4,000-1,500 =2,500 x 20% = $500).

It all adds up

It is not difficult for a family to go over the threshold (I single-handedly managed to get us up there just with a little dental work)! It is simple enough to access your medicare statement but you do should be aware of tracking the little things such as prescription medications - they just might be the tipping point to put you over the threshold.

More Personal Tax Cuts

According to Budget 2007-08, all taxpayers will benefit from from a further $31.5 billion in tax cuts over the next four years.

Highlights include:

1. From 1 July 2007, the low income tax offset will increase to $750 per year and the 30 per cent threshold will rise from $25,000 to $30,000.




2. From 1 July 2008, the 40 per cent threshold will increase to $80,000 and the 45 per cent threshold will increase to $180,000.

That's great news for next year but what about this tax season? Well, thanks to the May 2006 budget, it's still good news for low income earners.

More taxpayers are likely to qualify for the Low Income Tax Offset (LITO) this year as a result of the offset increasing from $235 to $600 and not starting to phase out until $25,000. So what does that mean for you? It means a reduced offset may be possible up to a taxable income of $40,000.

What are the Dollars & Sense Blogs all about?

Well, I am glad that you asked.

After designing, printing and posting client newsletters the other day, I was struck by the "light bulb" idea to begin blogging. It's a quick and effective way to communicate and offers so much more possibility than quarterly snail mail.

Alan and I see our role as more than a one-off tax season service for our individual clients. We are your accountants every day of the year. Unfortunately, it is often difficult to build upon that relationship and extend service throughout the year because most of our individual clients only phone in around July... even later if they aren't expecting a refund.

So, I asked around to discover what it is people really want to know and services they wished their accountant provided. As it turns out, there is a whole LOT... more than enough to justify regular blog updates.

Many of you face issues on a daily basis dealing with various government departments, understanding and claiming ever-changing entitlements, sorting out a household budget, knowing what records to keep, making sense of tax jargon, getting out of debt, contemplating home-businesses or getting back into the workforce once the kids are at school. Phew! It's no wonder we are all stressed these days.

As a family with three young children ourselves, we understand the frustration.

The aim of the Dollars & Sense blog for Individuals is to provide you with relevant information and tips so that you can stay informed and on top of nitty-gritty household management.

While I am beginning the blog with local families and clients in mind, most of the information and resources will be relevant to any Australian household.

You can expect articles, news, reviews, hints, tips, lessons and links covering everything outlined above from claiming tax rebates to cutting the grocery bill.

I'll be maintaining the "Individuals" blog and adding postings on a regular basis. Content will be guided by your feedback so don't be shy about making suggestions or offerring your comments.

We are also establishing the Dollars and Sense for Small Business blog with similar aims as an additional service to our business clients and anyone else who is interested.

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Christie Lewis is a business partner with Alan Lewis Accounting & Taxation Services. Located on the NSW Central Coast. More than just a tax time necessity... we remain at your service for the entire year. Visit us online today at www.lewistaxation.com.au

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