ATO Interpretative Decision

ATO ID 2002/184

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer, a member of the Australian Defence Forces, liable to pay the Medicare levy surcharge under section 8D of the Medicare Levy Act 1986 (MLA 1986) when their spouse does not have private patient hospital cover?

Decision

Yes. The taxpayer is liable to pay the Medicare levy surcharge under section 8D of the MLA 1986 when their spouse is not covered by private patient hospital cover.

Facts

The taxpayer is a full-time member of the Australian Defence Forces and receives free medical treatment from their employer.

The taxpayer's spouse is a full-time employee in a private company, does not have private patient hospital cover and is liable for the Medicare levy.

The taxpayer's spouse is not a prescribed person as defined by subsection 251U(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The taxpayer has no other dependants.

The taxpayer's family income will exceed $100 000. No reportable fringe benefits were received.

Reasons for Decision

Paragraph 251S(1)(a) of the ITAA 1936 provides that a Medicare levy is levied at the rate applicable in the MLA 1986 from the 1984 year of income onwards on the taxable income of a person who at any time during the year was a resident.

Section 8D of the MLA 1986 provides the amount of Medicare levy payable by a taxpayer is increased by 1% of their taxable income and reportable fringe benefits where, for the whole of the period:

•

they are a married person

•

the family income (total taxable income and reportable fringe benefits) exceeds the family surcharge threshold

•

they, or at least one of their dependants, are not covered by an insurance policy that provides private patient hospital cover, and

•

they are not a prescribed person as defined in section 251U of the ITAA 1936.

This increase in the amount of Medicare levy payable is commonly known as the Medicare levy surcharge.

Family surcharge threshold

Section 3A of the MLA 1986 provides that the family surcharge threshold for a family with no dependant children is $100 000.

Dependants

A dependant of a taxpayer is defined in subsection 251R(3) of the ITAA 1936 to include a person who was a resident Australian spouse of the taxpayer and the taxpayer contributed to their maintenance. A person who resides with another person is presumed to contribute to the maintenance of that other person (subsection 251R(6) of the ITAA 1936).

Where a person is a dependant of a taxpayer and is liable to the Medicare levy on their taxable income in the year of income, subsection 251R(6B) of the ITAA 1936 provides that the person will be deemed not to be a dependant of the taxpayer.

However, for the purposes of the Medicare levy surcharge, section 251V of the ITAA 1936 provides that subsection 251R(6B) of the ITAA 1936 does not apply. Therefore a resident Australian spouse is considered to be a dependant of the taxpayer for Medicare levy surcharge purposes.

The taxpayer's spouse is considered to be the taxpayer's dependant for Medicare levy surcharge purposes under subsection 251R(3) of the ITAA 1936 although they are liable to pay the Medicare levy on their taxable income.

Prescribed persons

A 'prescribed person' is defined in paragraph 251U(1)(a) of the ITAA 1936 to include a person who was a member of the Defence Force and was entitled to free medical treatment, or a relative of a member of the Defence Force who was entitled to free medical treatment. However, a person will not be a 'prescribed person' if any of their dependants are not prescribed persons (subsection 251U(2) of the ITAA 1936).

The taxpayer's spouse is considered to be the taxpayer's dependant for the purposes of the Medicare levy surcharge. The taxpayer's spouse is not a 'prescribed person' as defined by subsection 251U(1) of the ITAA 1936. Therefore the taxpayer will not be considered a 'prescribed person' as defined in paragraph 251U(1)(a) of the ITAA 1936 for the purposes of determining the Medicare levy surcharge.

The taxpayer is married and the taxpayer and spouse's combined taxable incomes and reportable fringe benefits exceed the family surcharge threshold of $100 000. The taxpayer's spouse is considered to be a dependant of the taxpayer for the purposes of the Medicare levy surcharge. The taxpayer's spouse is not covered by appropriate private patient hospital cover. The taxpayer is not considered to be a 'prescribed person' for the purposes of the Medicare levy surcharge as they have a dependant who is not also a 'prescribed person'. The taxpayer is therefore liable for the Medicare levy surcharge on their taxable income and reportable fringe benefits under section 8D of the MLA 1936.

Although the spouse of the taxpayer is a dependant for the purposes of the Medicare levy surcharge, they will not be a dependant for the purposes of the imposition of the Medicare levy. The spouse is not a dependant of the taxpayer for Medicare levy purposes because the spouse is liable for the Medicare levy on their taxable income (section 251R(6B) of the ITAA 1936). The taxpayer will therefore be entitled to an exemption from the Medicare levy under section 251T of the ITAA 1936.

Legislative References:
Income Tax Assessment Act 1936
   subsection 251R(3)
   subsection 251R(6)
   subsection 251R(6B)
   paragraph 251S(1)(a)
   section 251T
   section 251U
   subsection 251U(1)
   paragraph 251U(1)(a)
   subsection 251U(2)
   section 251V

Keywords
Medicare levy surcharge

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 February 2002

ISSN: 1445-2782