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Edited version of private ruling

Authorisation Number: 1011567105756

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Ruling

Subject: Employment income and Medicare levy surcharge

1. Is the employment income you receive from working for Country X in Australia assessable income to you in Australia?

Yes.

2. Are you entitled to claim a foreign tax credit or foreign income tax offset for the payment made to the Country X government as an automatic mandatory payment?

No.

3. Are you entitled to a deduction for payment made to the Country X government as an automatic mandatory payment?

No.

4. Does your membership in the Country X national insurance scheme exempt you from being liable for the Medicare levy surcharge (MLS)?

No.

This ruling applies for the following periods:

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on:

1 June 2007

Relevant facts and circumstances

You are a citizen of Country X.

You are not a citizen of Australia.

You applied for and were granted permanent residency in Australia so you could live with your Australian partner and your child.

You are employed in Australia by Country X. You began your employment a number of years after becoming a permanent resident of Australia.

A portion of your salary is paid to the Country X government as an automatic mandatory payment. The payment relates to contributions towards a Country X pension and a national insurance scheme.

You are a mandatory member of the Country X national insurance scheme.

As a member of the Country X national insurance scheme you receive full hospital and medical cover equivalent to private health insurance in Australia.

Relevant legislative provisions

International Tax Agreements Act 1953.

Income Tax Assessment Act 1997 Section 8-1.

Medicare Levy Act 1986 Sections 8B to 8D.

Reasons for decision

Employment income

Australia and Country X currently have an agreement in place to avoid double taxation and to prevent fiscal evasion with respect to taxes on income.

This agreement is contained in the International Tax Agreements Act 1953.

The relevant article states that salaries, wages and other similar remuneration, other than a pension or annuity, paid by Country X to an individual in respect of services rendered to Country X shall be taxable only in Country X. However, such salaries, wages and other similar remuneration shall be taxable only in Australia if the services are rendered in Australia and the individual is a resident of Australia who:

In your case, you are employed by the government of Country X in Australia. You have been a permanent resident of Australia for a number of years prior to taking up the employment.

Therefore, in accordance with the article, the employment income you receive as an employee at the Country X will be taxable in Australia. This income should be included under salary and wages in your income tax return.

Foreign tax credits and foreign income tax offsets

Foreign tax credits and foreign income tax offsets are generally available when you have paid foreign tax on income, profits or gains (including gains of a capital nature), that are included in your Australian assessable income.

In your case, a portion of your salary is paid to the Country X government as an automatic mandatory deduction which relates to contributions towards a Country X pension and a national medical insurance scheme.

This is not a tax but rather a contribution to a pension and a medical benefits scheme. Therefore, you are not entitled to a foreign tax credit or a foreign income tax offset for this payment.

Deduction for mandatory payments to Country X government

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Incurred in gaining or producing assessable income

In your case, the payments you make to the Country X government in relation to the medical insurance scheme and a Country X pension are a requirement of your employment by Country X. For this reason, these expenses are incurred in gaining or producing assessable income.

Therefore, you have satisfied the first part of the test in section 8-1 of the ITAA 1997 as outlined above.

Private or domestic in nature

In Taxation Determination TD 93/22 the Commissioner states that contributions paid to a private health fund are not deductible as they are private and domestic in nature, even where expense of private health insurance is a condition of employment.

The principle set out in TD 93/22 can be applied to your circumstances, as the payments you make relate to a medical insurance scheme, even though it is not a private Australian scheme.

The payments that you make to the Country X government in relation to the medical insurance scheme and a Country X pension are therefore private and domestic in nature. This means that you have not satisfied the second part of the test in section 8-1 of the ITAA 1997.

Therefore, you are not entitled to a deduction for this expense under section 8-1 of the ITAA 1997.

Medicare levy surcharge (MLS)

MLS is imposed on a taxpayer's taxable income by sections 8B to 8D of the Medicare Levy Act 1986.

You may have to pay the MLS if you or your dependants (including your spouse, even if they had their own income) did not have an appropriate level of private patient hospital cover for the whole of 2009-10 and your income for MLS purposes was above a certain amount.

An appropriate level of private patient hospital cover is cover provided by a registered health insurer for hospital treatment in Australia which has an excess of $500 or less (for a policy covering only one person), or $1,000 or less (for all other policies).

In your case, you are a mandatory member of the Country X national insurance scheme. Although as a member you receive full hospital and medical cover equivalent to private health insurance in Australia, the Country X national insurance scheme is not a registered health insurer for hospital treatment in Australia.

Therefore, the fact that you are a mandatory member of the Country X national insurance scheme does not mean that you will be exempt from MLS.

Further information on the MLS, and the tests used to determine whether you will be liable for MLS, is available on our website, www.ato.gov.au .

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