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Ruling

Subject: Medicare levy surcharge and Flood levy

Question

Can the Commissioner remit or reduce the Medicare levy surcharge and Flood Levy imposed for the year ended 30 June 2012?

Answer

No

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

During the last financial year you were paid a Voluntary Separation payment when you ceased your employment.

Your superannuation was also paid out. This payment was made up of a taxed element of $X and a tax free component of $X.

Your employment earnings for the financial year were $X. Your spouse's taxable income was $X.

Due to these one off payments you and your spouse are required to pay a Medicare levy, Medicare levy surcharge and a flood levy.

You did not have private health cover as you have not previously been able to afford it, and would now be restricted due to your health issues.

Relevant legislative provisions

Medicare Levy Act 1986 Sections 8B to 8G

Income Tax (Transitional Provisions) Act 1997 Section 4-10

Reasons for decision

Summary

The taxable components of the payments you received upon cessation of your employment are included in determining your taxable income for Medicare levy surcharge and flood levy purposes. Your taxable income will also include the other amounts of assessable income you will receive including those amounts that you would not normally receive in a financial year.

The Commissioner does not have the discretion to disregard any of these amounts from your taxable income when calculating the amount of Medicare levy surcharge and flood levy payable.

Detailed reasoning

Taxpayers without adequate private patient hospital cover through health insurance are liable to pay an additional 1% Medicare levy surcharge if their incomes for Medicare levy surcharge purposes exceed the relevant threshold.

The Medicare levy surcharge is imposed by sections 8B to 8G of the Medicare Levy Act 1986 (MLA 1986).

Whether the Commissioner has any discretion in relation to the imposition of the Medicare levy surcharge was discussed in McCarthy v FC of T 2002 ATC 2204. The Administrative Appeals Tribunal (AAT) held that the Commissioner has no power to remit the Medicare levy surcharge imposed on a taxpayer.

In this case the taxpayer resigned from his employment and received a lump sum payment and an eligible termination payment. The taxable income for the year ended 30 June 200X was $Y. As the taxpayer's taxable income exceeded $50,000 and he had no private health insurance, the Commissioner imposed the Medicare levy surcharge.

The taxpayer argued that the imposition of the surcharge was unfair because his taxable income had been inflated by a settlement that was made in unusual circumstances. The AAT held that the Commissioner had no choice but to impose the levy. The clear wording of the MLA 1986 required the 1% surcharge to be imposed on anyone with income exceeding $50,000 where they satisfied the other criteria laid down in subsection 8B(1) of the MLA 1986. There was no dispute that the taxpayer satisfied those criteria. Further legislation did not include the discretion to waive or modify the surcharge in cases of hardship or other special circumstances, and therefore the surcharge was payable

We acknowledge your specific circumstances. However, as outlined in the above case, the legislation has no provision to remit or reduce the Medicare levy surcharge. Furthermore the Commissioner cannot disregard your superannuation or voluntary separation payments when calculating your income for the purposes of the Medicare levy surcharge. Therefore you are liable for the Medicare levy surcharge as imposed.

Flood levy

As stated above there is no provision within the taxation legislation which allows the Commissioner to exclude any components of otherwise assessable income from the calculation of your taxable income for flood levy purposes. Nor is the Commissioner able to omit any one-off payments which you would not normally receive during a financial year.

The flood levy is calculated based on your total taxable income for the year ended 30 June 2012 which includes the taxable component of the amounts you received upon the cessation of your employment.

Accordingly, you will be liable to pay the flood levy on that portion of your taxable income that exceeds $50,000 for the 2011-12 financial year.

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