ATO Interpretative Decision
ATO ID 2002/51
Income Tax
Medicare Levy - whether receipt of lump sum payment related to a period when a taxpayer was a 'prescribed person' is excluded from taxable incomeFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a lump sum payment which related to a period when the taxpayer was a 'prescribed person', excluded from taxable income for the purposes of calculating the rate of Medicare levy under subsection 6(1) of the Medicare Levy Act 1986 (MLA 1986)?
Decision
No. A lump sum payment which related to a period when the taxpayer was a 'prescribed person', is not excluded from taxable income for the purposes of calculating the rate of Medicare levy under subsection 6(1) of the MLA 1986.
Facts
The taxpayer received an assessable lump sum compensation payment from the Department of Defence. At the time of receipt of the lump sum payment the taxpayer had ceased to be a Defence Force member.
The payment related to two earlier income years. The taxpayer had been a member of the Defence Force during those earlier years.
Reasons for Decision
Paragraph 251S(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that Medicare levy is payable on the taxable income of a person who was a resident of Australia at any time during the relevant income year.
However, paragraph 251T(a) of the ITAA 1936 provides that the Medicare levy is not payable by a person who is a 'prescribed person' during the whole of the year of income. A 'prescribed person' is defined to include a member of the Defence Force (paragraph 251U(1)(a) of the ITAA 1936).
The taxable income of a person includes any lump sum payment that was assessable income of the year of income. Such payments are assessable in the year of receipt.
The lump sum payment to the taxpayer related to a period when the taxpayer was a member of the Defence Force and consequently was a 'prescribed person'. However, the lump sum payment was made to the taxpayer at a time when the taxpayer was no longer a member of the Defence Force and therefore no longer a 'prescribed person' within the definition of paragraph 251U(1)(a) of the ITAA 1936. The lump sum payment is therefore included in taxable income for the purposes of calculating the Medicare Levy under subsection 6(1) of the MLA 1986. It is not relevant that the taxpayer may have been a 'prescribed person' during the earlier years to which the payment relates.
Date of decision: 7 August 2001
Legislative References:
Medicare Levy Act 1986
section 6(1)
paragraph 251S(1)(a)
paragraph 251T(a)
paragraph 251U(1)(a)
Keywords
Medicare levy
Lump sum payments
Prescribed person issues
Date reviewed: 2 March 2015
ISSN: 1445-2782