Re Commissioner of Taxation of the Commonwealth of Australia v Ugur Ildes [1988] FCA 68 (16 March 1988)

FEDERAL COURT OF AUSTRALIA

Re: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA And: UGUR ILDES
No. QLD G28 of 1987
Taxation

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Spender J.(1)

CATCHWORDS

Taxation - income tax - concessional deductions - medical expenses - spa pool with hydrojets for treatment of intractable back pain - whether a medical or surgical appliance - Income Tax Assessment Act 1936 s.159(4)(f).

Income Tax Assessment Act 1936 s.159(4)(f)

HEARING

BRISBANE
16:3:1988

Counsel for applicant: Mr. P. Hack

instructed by: Mr. McMorrow of Australian

Government Solicitor's Office

Counsel for respondent: Mr. M. Eliadis

instructed by: Emanuel E. Eliadis

ORDER

The decision of the Tribunal be set aside and that in lieu thereof the Commissioner's decision on the objection in respect of the year of income ended 30 June 1984 be affirmed.

By consent, the Commissioner pay the respondent's costs to be taxed if not agreed.

NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

DECISION

This is an appeal under s.44 of the Administrative Appeals Tribunal Act 1975 from a decision of the Taxation Appeals Tribunal of the Administrative Appeals Tribunal, which set aside a decision of the Commissioner and upheld the objection by the taxpayer, Ugur Ildes, that the cost of acquiring and installing a spa bar with hydrojets at his home on or about 21 June 1984 was rebatable as a concessional expenditure pursuant to s.159P of the Income Tax Assessment Act 1936 ('the Tax Act').

2. Section 159P relevantly provides:-

"(1) An amount paid by the taxpayer in the year of
income as medical expenses in respect of himself
... shall, for the purposes of this section, be
treated as a rebatable amount in respect of that
year of income.

...

(4) In this section -

...

'medical expenses' means payments -

...

(b) to a legally qualified dentist for dental
services or treatment or the supply,
alteration or repair of artificial teeth;

(c) to a person registered under a law of a State
or Territory as a dental mechanic in respect
of charges lawfully made by that person for
the supply, alteration or repair of artificial
teeth;

(d) for therapeutic treatment administered by
direction of a legally qualified medical
practitioner;

(e) in respect of an artificial limb (or part of a
limb), artificial eye or hearing aid;

(f) in respect of a medical or surgical appliance
(not otherwise specified in this definition)
prescribed by a legally qualified medical
practitioner;

(g) for -

(i) the testing of eyes or the prescribing of
spectacles by a person legally qualified
to perform those services; or

(ii) the supply of spectacles in accordance
with any such prescription;

..."

3. The Tribunal found that the spa pool, which was a 'Grecian Deluxe' model, described in the literature of the installer as "(a) medium sized Spa from the 'Premier Family Range'. Seats 5-6 Adults(.)" was installed in the taxpayer's backyard after excavation and a water and cement mix base laid and the shell placed on top of that base. The decision of the Tribunal proceeded on the basis that the spa became a 'fixture' and that it could not be removed without destroying its function. Photographs before the Tribunal showed that the spa pool is attractively landscaped and surrounded by a tiled surface with an outdoor wood setting and outdoor plastic lounges.

4. The Commissioner had asserted before the Tribunal that the cost of the spa pool did not qualify as a medical expense. It was submitted on the Commissioner's behalf that the spa pool had become a fixture and therefore had ceased to qualify as a medical expense within the meaning of s.159P(4)(f). A number of decisions of Boards of Review was referred to in this respect. The Tribunal rejected the view expressed in those cases, and said:-

"No reason is offered why a fixture cannot be a
medical appliance or why it loses its
characteristic once it is embedded in the soil. On
the assumption that sec. 159P is remedial and
designed to provide some modest relief by way of
rebate for taxpayers who suffer an illness or
disability and who incur 'medical expenses' as
defined, it seems to me that this intention is
defeated by a method of interpretation which
relies on a word-by-word analysis derived from the
Oxford English Dictionary. I am satisfied that
the mere fact that this Spa pool is affixed to the
soil is not a relevant criterion as to whether or
not it qualifies as a 'medical appliance'".

5. Later on, the learned Senior Member constituting the Tribunal said:-

"...the test whether an appliance is 'medical'
relates to its function, not whether it happens to
be embedded in concrete."

6. The Tribunal referred to Case P40 82 ATC 184, and the observations of Mr. Pape, at p 191, where he said, having referred to various of the appliances in the section:-

"...more specifically they have the common
characteristic of being artificial aids to
function or capacity, albeit that an artificial
eye may be said to be cosmetic.

...

It is the words of the section which must
elucidate its intention, and in my opinion the
word 'appliance' is to be construed in the context
of this definition to mean artificial aids, in
other words artificial aids to a person's ability
to carry out a normal life when in fact he suffers
from some disability - see Holmes v. Bradmill
Industries Ltd. (1971) WCR (NSW) 97.

...

In my opinion the hydrotherapy pool is not
properly capable of being classified as an
artificial aid within the meaning of para. (f).
... The hydrotherapy pool was in my opinion the
means of administering treatment rather than
acting as an artificial aid to ameliorate the
taxpayer's physical movement."

This approach was rejected by the Tribunal. In my opinion, however, the observations are sound.
The question as posed by the Tribunal was:-

"...can a Spa pool of a kind, which is found in
many homes and blocks of units, and used for
purposes other than therapeutics constitute a
'medical appliance' merely because it has been
prescribed by a medical practitioner?"

The Tribunal answered this in the affirmative, and said in this respect:-

"It is not part of my function to evaluate the
effectiveness of a Spa pool for chronic sciatica.
It is sufficient that the applicant's doctor saw
fit to prescribe it. I accept that this Spa pool
was installed for the sole purpose of alleviating
the applicant's back pain and so reduce the dosage
of his medication."

7. In my view, the Tribunal misdirected itself as to what constituted a 'medical appliance' for the purposes of s.159P(4)(f). Accepting for present purposes that an appliance can comprehend a fixture, it seems to me that the essential ingredient of a medical appliance for the purposes of s.159P(4)(f) is that it constitutes an aid to function or capacity. The mere fact that an article has a therapeutic purpose does not constitute the article a medical or surgical appliance within the meaning of the section.

8. In Case P29 14 TBRD 143, the Board of Review No.2 concluded that an airconditioning unit used to relieve bronchial asthma was not a medical or surgical appliance for the purpose of the then relevant section of the Act. The observations of the Board at p 144 are apposite in the present circumstances. The Board said:-

"(The taxpayer) argued that as the air-conditioning
unit was purchased and installed for the purpose
of improving his health and was effective in so
doing it was a 'medical appliance' in the
dictionary meaning of the words.

We think that this approach to the question stems
from a misunderstanding of the section. The
taxpayer's physician advised the use of an
air-conditioning unit, that is to say of an
article which would be described in ordinary
speech as a household and commercial appliance.
That character of the appliance was not altered by
either the recommendation of the physician or the
taxpayer's purpose in purchasing and using it.

The taxpayer also submitted that the section
provided benefits for taxpayers and it should be
given a liberal interpretation to effect the
spirit and intention of the legislation. For the
reasons which follow we think the words of the
section are unambiguous and we give to them their
ordinary meaning.

It is not sufficient for a taxpayer to show that a
physician has prescribed an appliance to be used
for medical or surgical ends. That would be
implicit without more in the requirement that the
appliance be prescribed. The section requires
that the appliance be a medical or surgical
appliance, that is an appliance which is
manufactured as or distributed as or generally
recognised to be an article or thing intended to
achieve a medical or surgical end."

I regard this analysis as sound.

9. Such a view is consistent with the conclusion that a chairlift installed in a home and affixed to a stairway and electrically operated is a medical appliance within the sub-section as held by the No.1 Board of Review in Case D37 72 ATC 210. Such a device is clearly an aid to function, in the same way as a wheelchair is. The fact that it might be regarded as a fixture is not to the point.

10. In short, in my view, whether an appliance is a medical or surgical appliance within the meaning of the sub-section is not determined, as the Tribunal concluded, by asking whether its prescription had a therapeutic purpose, but by asking whether the appliance is an aid to function or capacity.

11. As a further argument advanced on behalf of the Commissioner, it was said that, even if the spa pool was a medical appliance (contrary to my view), it had not been 'prescribed' as required by the Act. It was not submitted on the Commissioner's behalf that there was any requirement that a prescription be in writing.

12. The Tribunal noted that:-

"...I have no evidence before me whether the
applicant had discussed a Spa installation with
his doctor before the 9th July."

Accompanying the Income Tax Return for the year ended June 1984, the taxpayer had enclosed a letter, dated 9 July 1984, from his medical practitioner in these terms:-

"Mr. UGUR ILDES is a patient of mine who suffers
from severe low back pain and sciatica. He is in
persistent pain and it is medically essential for
him to have the Spa with hydrojets at home to help
alleviate his pain."

13. It seems to me to have been open to the Tribunal to have concluded that the spa pool had been prescribed by the taxpayer's medical practitioner prior to its installation. The Tribunal concluded, as I think it was open to it so to do, that:-

"...on the probabilities...the Spa pool was
installed on the recommendation of the applicant's
doctor, and thus 'prescribed' within the meaning
of the section."

14. It seems clear that the letter in the taxpayer's return was obtained after the event in respect of matters that had occurred prior to the installation of the spa pool. In my opinion, no error has been demonstrated in respect of this aspect of the Commissioner's appeal.

15. However, for the reasons earlier expressed, I am of the view that the taxpayer is not entitled to a rebate as a concessional expenditure pursuant to s.159P of the Tax Act for the cost of acquiring and installing the spa pool and associated equipment in his home on or about 21 June 1984.

16. I order that the decision of the Tribunal be set aside and that in lieu thereof the Commissioner's decision on the objection in respect of the year of income ended 30 June 1984 be affirmed.