Edited version of private ruling

Authorisation Number: 1011590105715

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Ruling

Subject: Medicare levy surcharge

1. Are you exempt from paying the Medicare levy surcharge (MLS) where your private health insurance provider is not an approved health provider under the National Health Act 1953 (NHA 1953)

No.

2. Are you entitled to disregard the reimbursement made by your health insurance provider when you calculate the net medical expenses for the medical expenses tax offset for the relevant tax year?

No.

This ruling applies for the following period

1 July 2009 to 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

You hold a foreign health fund policy which has paid the majority of medical expenses for the 2009-10 income year.

The foreign health fund is not listed as an approved health fund under the NHA 1953.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 251 and

Income Tax Assessment Act 1936 section 159P.

Reasons for decision

Medicare levy surcharge exemption

Paragraph 251S(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a Medicare levy is applied at the rate specified in the Medicare Levy Act 1986 (MLA 1986), on the taxable income of a person who at any time during the year of income was a resident. The MLS is also incorporated in the MLA 1986.

A person does not have to pay the MLS if they are in one of the Medicare levy exemption categories during an income tax year. Therefore, it is first necessary to determine if the Medicare levy applies to your situation.

A person may be exempt from paying the Medicare levy if they are a prescribed person as set out in sections 251T and 251U of the ITAA 1936. Taxation Determination TD 92/168 sets out a summary of who is considered to be a prescribed person. The main categories are:

· A member of the Defence Force

· A veteran's (repatriation) beneficiary

· A non income tested health card holder

· A non-resident of Australia

· A foreign government representative

· A person certified by the Minister of Health as not being entitled to Medicare benefits.

These exemption categories do not apply to you. Therefore, you are not considered to be a prescribed person.

As you are not a prescribed person you are liable for the MLS when your taxable income exceeds the MLS threshold and you do not hold the appropriate private patient hospital cover.

The term "private patient hospital cover" is defined in the MLA 1986 by reference to provisions of the NHA 1953.

Regardless of whether the insurer is an Australian or an overseas health fund, three conditions have to be satisfied for health insurance to be considered private patient hospital cover. These conditions are:

1. Your health insurance has to cover you and your dependants, wholly or partially for the fees for a stay in a hospital in Australia

2. The insurer has to have a purchaser-provider agreement, within the meaning of the NHA 1953, with the relevant hospital

3. The insurer has to be an organisation registered under the NHA 1953.

In your case, you have indicated that you have private health insurance from an overseas company. This company is not a registered organisation in accordance with the NHA 1953. 

As a result, you are not covered by an insurance policy that provides private patient hospital cover as required by section 3 of the MLA 1986. Therefore, you are liable to pay the MLS for the year ended 30 June 2010.

Calculation of the Medical Tax Offset

The medical expense tax offset is available to a taxpayer under section 159P of the ITAA 1936, where the taxpayer incurs medical expenses for themselves or a dependant who is an Australian resident. The tax offset is equal to 20% of the amount by which the medical expenses exceeds the threshold dollar amount specified in the section.

However, subsection 159P(1) of the ITAA 1936 provides that any amount which the taxpayer or any other person is entitled to be paid by a government, public authority, society, association or fund must reduce the amount of the medical expenses for the purposes of calculating the tax offset. Also subsection 159P(1) of the ITAA 1936, does not require that the authority, society, association or fund be a resident of Australia.

Therefore, as you incurred medical expenses and were entitled to reimbursement from your health insurance fund, you are required to reduce the amount of the medical expenses by the reimbursement made to you for the purposes of calculating your entitlement to the medical expense tax offset under section 159P of the ITAA 1936.

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