Edited version of your written advice

Authorisation Number: 1012729245396

Ruling

Subject: Medicare levy surcharge

Question

Are you required to pay the Medicare levy surcharge (MLS) where you do not hold complying health cover and your family income exceeds the threshold amount?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You arrived in Australia under a subclass 457 (temporary business long stay) visa.

You were granted permanent residency in 2013.

You hold a certificate from Medicare Australia showing that you are not entitled to Medicare benefits for part of the 2013-14 financial year.

You were covered for the whole of the financial year as a member of your employer's group health plan.

You and your spouse are recorded as beneficiaries on the membership certificate.

The fund does not appear on the Private Health Insurance Administration Council website.

Relevant legislative provisions

Income Tax Assessment Act 1936 Part VIIB

Income Tax Assessment Act 1936 Section 251R

Income Tax Assessment Act 1936 Section 251S

Income Tax Assessment Act 1936 Section 251T

Income Tax Assessment Act 1936 Subsection 251U(1)

Medicare Levy Act 1986

Medicare Levy Act 1986 Section 3A

Medicare Levy Act 1986 Subsection 3(5)

Medicare Levy Act 1986 Section 8

Medicare Levy Act 1986 Section 8D

Reasons for decision

The imposition and collection of the Medicare levy is governed by Part VIIB of the Income Tax Assessment Act 1936 (ITAA 1936) and the Medicare Levy Act 1986 (MLA 1986). A fundamental objective of the legislation is to integrate collection of the levy with the collection of income tax.

Section 251S of the ITAA 1936 provides that a Medicare levy is levied at the rate applicable in the Medicare Levy Act 1986 (MLA) on the taxable income of a person who is a resident of Australia at any time during the income year.

Section 251T of the ITAA 1936 provides for a full or partial exemption from the levy to persons who qualify as prescribed persons. Prescribed persons are listed in subsection 251U (1) of the ITAA 1936 and include:

• members of the Defence forces and Veteran Affairs who are entitled to full free medical treatment

• residents of Norfolk Island or non-Australian residents

• blind pensioners or recipients of a sickness allowance from Centrelink

• diplomats and consular officials who are not citizens and not normally residents of Australia, and

• persons who hold a certificate from Medicare Australia showing they are not entitled to Medicare benefits.

In your case, you hold a certificate from Medicare Australia showing that you were not entitled to Medicare benefits for X days of the financial year. Therefore you are only exempt from paying the levy for X days in the 2013-14 financial year.

Holding private health insurance has no impact on the imposition of the Medicare levy. The imposition of the Medicare levy is based on the level of income earned.

Medicare levy surcharge (MLS)

An increase in the Medicare levy (the Medicare levy surcharge) is imposed on a taxpayer's:

• taxable income by section 8B to 8D of the MLA, and

• reportable fringe benefits by the A New Tax System (Medicare Levy Surcharge Fringe Benefits) Act 1999, and

• any amount on which family trust distribution tax has been paid

for the period the taxpayer or any of their dependants are not covered by an insurance policy that provides an appropriate level of private patient hospital cover for the whole of the 2013-14 financial year and their combined income exceeds the appropriate surcharge threshold.

A dependent, regardless of their income includes (defined in section 251R of the ITAA 1936) :-

• your spouse, even if they worked during the 2013-14 financial year or had their own income

• your children under 21 years old

• your children who are 21 years old or older and under 25 years old who are full-time students.

Subsection 3(5) of the MLA 1986 states that a person is covered by an insurance policy that provides private patient hospital cover if the policy is a complying health insurance policy (within the meaning of the Private Health Insurance Act 2007 (PHIA)) that covers hospital treatment, and any excess payable in respect of benefits under the policy is no more than $1,000 in any 12 month period, for policies that cover more than one person.

The Private Health Insurance Administration Council (PHIAC) administers the PHIA 2007 and maintains on its website (www.phiac.gov.au) an up to date record of all private health insurers providing complying policies.

Your policy is with an overseas private health insurance fund and does not appear on the PHIAC's website. Therefore this policy is not a complying policy within the meaning of the PHIA 2007 and does not satisfy the requirement of subsection 3(5) of the MLA 1986.

Your situation is similar to that of the taxpayer in Adam Fraser v. Commissioner of Taxation [2000] AATA 738. In that case Mr Fraser was a member of BUPA International. His policy was described as providing "private health cover to the highest possible standard in terms of its diverse coverage of medical complaints, a zero excess and its global nature". It was determined that whilst Mr Fraser possessed health insurance coverage and was not a burden on the public health system, this was not the criteria adopted by the legislation which imposes the MLS. As his fund was not on the Register of Health Benefits Organizations his membership could not satisfy the requirements of section 8B of the MLA so as to avoid the surcharge.

The MLS is income tested against the following income tier thresholds:

* The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.

Therefore, if you're combined income for the MLS purposes is over the base rate of $176,000 you will be liable for the MLS for the period you were not exempt.

The Commissioner has no discretion to waive or reduce your liability for the Medicare levy (or the Medicare levy surcharge) as there is no provision in the legislation to do so. Once the income of a taxpayer, who does not hold the appropriate health cover, reaches the Medicare levy surcharge threshold the surcharge must be imposed in accordance with the legislation.

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