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Edited version of your written advice
Authorisation Number: 1013113405174
Date of advice: 25 October 2016
Ruling
Subject: Medicare Levy surcharge
Question
Are you liable for the Medicare levy surcharge (MLS) where you are covered by an overseas health insurance policy?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 20XY
The scheme commences on:
1 July 20XY
Relevant facts and circumstances
You are covered under a private health insurance policy by an international insurer.
The policy covers the taxpayer from 20XX to 20XY.
The private health insurance policy is issued by an overseas health insurance fund.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 251S
Medicare Levy Act 1986 Section 8B
Medicare Levy Act 1986 Section 8D
Medicare Levy Act 1986 Subsection 3(5)
Reasons for decision
Detailed reasoning
Section 251S 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.
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 they or any of their dependants are not covered by an insurance policy, that provides appropriate level of private patient hospital cover and their combined income exceeds the appropriate surcharge threshold.
Income for Medicare levy surcharge purposes is the sum of:
● taxable income,
● reportable fringe benefits,
● total net investment losses,
● reportable super contributions, and
● any amount on which family trust distribution tax has been paid.
Surcharge Thresholds
The Medicare Levy Surcharge is income tested against the following income tier thresholds:
Threshold |
Tier 1 |
Tier 2 |
Tier 3 | |
Singles |
$90,000 or less |
$90,001 -$102,000 |
$105,001 -$140,000 |
$140,001 or more |
Families* |
$180,000 or less |
$180,001 -$210,000 |
$210,001-$280,000 |
$280,001 or more |
Rates |
0.0% |
1.0% |
1.25% |
1.5% |
*The family income threshold is increased by $1,500 for each Medicare Levy Surcharge dependent child after the first child.
You may have to pay Medicare Levy Surcharge for any period during the income year that you, your spouse, or any of your dependents:
● did not have an appropriate level of private patient hospital cover for the whole income year, and
● your income for Medicare Levy Surcharge purposes is in or above the tier 1 threshold.
Subsection 3(5) of the MLA states the following:
For the purposes of this Act, a person is covered by an insurance policy that provides private patient hospital cover if:
(a) the policy is a complying health insurance policy (within the meaning of the Private Health Insurance Act 2007) that covers hospital treatment (within the meaning of that Act); and
(b) any excess payable in respect of benefits under the policy is no more than:
(i) $500 in any 12 month period, in relation to a policy under which only one person is insured; and
(ii) $1,000 in any 12 month period, in relation to any other policy.
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. The Private Health Insurance Administration Council confirmed in this case that BUPA International is not on the Relevant Register.
The Private Health Insurance Administration Council administers the Private Health Insurance Act 2007 and maintains on its website (www.phiac.gov.au) an up to date record of all private health insurers providing complying policies.
Application to your circumstances
As your private health insurer is not on the Relevant Register, it cannot issue complying health insurance policies. As you are not covered by a complying health insurance policy, when your income for MLS purposes is greater than the threshold, you will be liable for the MLS.
In the case of McCarthy v F C of T 2002 ATC 2004, the applicant applied for an exemption from the Medicare levy being imposed. It was determined that the Commissioner had no discretion to not impose the Medicare levy (or the Medicare levy surcharge) as there was no provision in the legislation to do so. Once a taxpayer's income has reached the Medicare levy surcharge threshold the surcharge must be imposed in accordance with the legislation.
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