Edited version of private ruling

Authorisation Number: 1011598496155

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Medicare levy surcharge

1. Are you and your spouse exempt from the Medicare levy for the period you are overseas?

No.

2. Are you and your spouse liable for the Medicare levy surcharge for the period you are overseas if you suspend your private health insurance and take out travel insurance?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You and your spouse are Australian residents.

You both intend to travel overseas and will be away for possibly two years.

You will have a long stay visitor's visa which does not allow you to engage in employment.

You will continue to receive a family income from your business in Australia while overseas.

You anticipate that your family income will exceed the family surcharge threshold.

You are considering suspending your private health insurance for the period you are away and have obtained travel insurance to cover your health matters while overseas.

Reasons for decision

Medicare levy

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 1986) from the 1984 year of income onwards on the taxable income of a person who at any time during the year was a resident.

The provisions of sections 251T and 251U of the ITAA 1936, provide that Medicare levy is not payable by certain classes of persons, referred to as prescribed persons. An exemption from the levy is conferred by section 251T of the ITAA 1936 on a person who is a prescribed person during the whole of the year of income. Where a person qualifies as a prescribed person for part of the income year only, partial exemption is available.

The main categories of prescribed persons as defined in section 251U of the ITAA 1936 are:

· a member of the Defence Force

· a veterans' (repatriation) beneficiary

· a non income tested health card holder

· a non-resident of Australia

· a foreign government representative

· a person certified by the Minister of Health as not being entitled to Medicare benefits

As you and your spouse do not fall into any of the above categories of prescribed persons, you are not exempt from the Medicare levy for the period you are overseas.

Medicare levy surcharge

Section 8D of the MLA 1986 provides the amount of Medicare levy payable by a taxpayer is increased by 1% of their taxable income and reportable fringe benefits where, for the whole of the period:

· they are a married person

· the family income (total taxable income and reportable fringe benefits) exceeds the family surcharge threshold

· they, or at least one of their dependants, are not covered by an insurance policy that provides private patient hospital cover, and

· they are not a prescribed person as defined in section 251U of the ITAA 1936.

This increase in the amount of Medicare levy payable is commonly known as the Medicare levy surcharge.

Section 3A of the MLA 1986 provides that the family surcharge threshold for a family with no dependant children is $146,000 for the 2009-10 income year (The family surcharge threshold amount is subject to change for future years).

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 2007)) that covers hospital treatment.

Travel insurance is not a complying health insurance policy for the purposes of the PHIA 2007. Accordingly, the travel insurance is not private patient hospital cover for the purposes of subsection 3(5) of the MLA 1986.

As you intend to suspend your private patient health cover while overseas, you are not considered to have the appropriate private patient hospital cover as required under section 8D of the MLA 1986.

Should your family income exceed the family surcharge threshold in the 2010-11 and 2011-12 income years you and your spouse will be liable for the Medicare levy surcharge.