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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1013013025781

Date of advice: 12 May 2016

Ruling

Subject: Medicare levy surcharge

Question 1

Does your overseas health insurance policy qualify as a complying health insurance policy for Medicare levy surcharge purposes?

Answer

No.

Question 2

Are you entitled to an exemption for the Medicare levy surcharge?

Answer

No.

Question 3

Can the Commissioner remit or reduce the Medicare levy surcharge imposed?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2014

Relevant facts

You were successful in obtaining an international secondment with your employer.

The time between offer, acceptance and departure was relatively short.

As part of the secondment, you were required to source and take out international expatriate health insurance policies to cover you and your spouse for your time away.

You then sought to suspend your Australian policies. At the time, your health fund mentioned that this action may incur a Medicare levy surcharge (MLS) which you had not heard of before and in your hasty departure didn't have sufficient time to explore this fully.

After settling to your new country you did some research on the MLS and decided that the MLS would be slightly less than continuing your policies or neutral at best and therefore accepted the outcome. What you didn't know at the time is that the living away from home allowance that your spouse received during the secondment would be added back to their assessable income and therefore the MLS would be higher than previously thought. You discovered this in late June.

When you returned to Australia for a short visit, you reactivated your Australian policies.

You are an Australian resident for tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax Assessment Act 1936 Section 251R.

Income Tax Assessment Act 1936 Section 251S.

Income Tax Assessment Act 1936 Section 251U.

Medicare Levy Act 1986 Sections 8B to 8G.

Reasons for decision

Medicare Levy Surcharge (MLS)

Paragraph 251S(1)(a) of the Income Tax Assessment Act 1936 (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.

Section 8D of the MLA imposes an increase in the Medicare Levy (the Medicare levy surcharge) for a married person for the period they or any of their dependants, who are not prescribed persons, are not covered by an insurance policy that provides private patient hospital cover.

A prescribed person, as defined in section 251U of the ITAA 1936, is:

You and your spouse are not prescribed persons.

A dependent includes your spouse as defined in section 251R of the ITAA 1936.

Subsection 3(5) of the MLA 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 2007)) 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.

The expatriate health insurance does not appear on the PHIAC's website. Therefore this policy is not a complying health insurance policy within the meaning of the PHIA 2007 and does not satisfy the requirement of subsection 3(5) of the MLA.

While we accept that you have private patient hospital cover with your insurance, your policy is not a complying policy for MLS purposes. That is, your health cover is not provided by an insurance policy issued by a registered health insurer for hospital treatment in Australia.

Where a person does not have private patient hospital cover with a complying fund, they are liable to pay an additional Medicare levy surcharge if their income, for Medicare levy surcharge purposes, exceeds the relevant threshold.

The relevant combined income thresholds for MLS purposes for people who have a spouse for year ending 30 June 2015 is

Income for Medicare levy surcharge purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997. The income for surcharge purposes is the sum of:

Where you and your spouse's combined income for MLS purposes exceeds the relevant threshold, then you are liable to pay the MLS.

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. The taxpayer argued that the imposition of the surcharge was unfair. The AAT held that the Commissioner had no choice but to impose the levy. The clear wording of the MLA 1986 required the surcharge to be imposed. Furthermore, the 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, the legislation has no provision to remit or reduce the Medicare levy surcharge. There are no exemptions that apply to your specific circumstances, therefore you are liable for the MLS.

Please note that the MLS only applies for the days that you did not have appropriate level of private patient hospital cover.

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