ATO Interpretative Decision

ATO ID 2002/278 (Withdrawn)

Income Tax

• This ATO ID has been withdrawn due to the introduction of the Private Health Insurance Act 2007 and is replaced by ATO ID 2011/21.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer liable for the Medicare levy surcharge under section 8B of the Medicare Levy Act 1986 (MLA 1986) where they have private health insurance under an overseas visitors policy with an Australian health insurance company?

Decision

Yes. An overseas visitor policy does not provide appropriate private patient hospital cover. The taxpayer is therefore liable for the surcharge under section 8B of the MLA 1986 if their taxable income and reportable fringe benefits exceed the relevant threshold.

Facts

The taxpayer is a resident of Australia for tax purposes.

The taxpayer is single and has no dependants.

The taxpayer's taxable income exceeded $50 000 in the year of income. The taxpayer did not receive reportable fringe benefits.

The taxpayer has private health insurance in the form of an overseas visitor's policy with an Australian health insurance company. The Health Insurance Commission advises that the policy is not an arrangement between the contributor and a registered organisation for the purposes of section 5A of the National Health Act 1953 (NHA 1953).

The taxpayer is not a 'prescribed person' as defined in section 251U of the Income Tax Assessment Act 1936 (ITAA 1936).

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 of income was a resident.

Section 8B of the MLA 1986 provides that 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 year, they:

Exceed $50 000 in taxable income and reportable fringe benefits

•

Are not a married person

•

Do not have dependants

•

Do not have private patient hospital cover, and

•

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.

Subsection 3(5) of the MLA 1986 defines 'private patient hospital cover'. It states that 'a person is covered by an insurance policy that provides private patient hospital cover if the policy is an applicable benefits arrangement within the meaning of section 5A of the NHA 1953'.

Subsection 5A(1) of the NHA 1953 provides that an 'applicable benefits arrangement' is one that a registered organisation has entered into with contributors to the health benefits fund conducted by that fund, and under which the contributors are covered (wholly or partly) for liability to pay fees and charges in respect of various medical services and treatments.

The taxpayer has private health insurance in the form of an overseas visitor's policy with an Australian health insurance company. The Health Insurance Commission advises that the policy is not an arrangement between the contributor and a registered organisation for the purposes of section 5A of the NHA 1953.

Therefore, the taxpayer's overseas visitor policy is not an 'applicable benefits arrangement' for the purposes of section 5A of the NHA 1953. Accordingly, the policy does not provide appropriate private patient hospital cover.

The taxpayer is liable to pay the surcharge under section 8B of the MLA 1986 as they are single with no dependents, are not a prescribed person, do not have appropriate private patient hospital cover and their taxable income exceeds $50 000.

Note: The medicare levy surcharge on a taxpayer's taxable income applies from the 1998 income year onwards and on reportable fringe benefits from the 2000 and later years of income.

Legislative References:
Medicare Levy Act 1986
   section 8B
   subsection 3(5)

Keywords
Medicare levy surcharge

Business Line:  Small Business/Individual Taxpayers

Date of publication:  22 March 2002

ISSN: 1445-2782