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Ruling

Subject: Medicare levy surcharge

Question

Can the Commissioner remit or reduce the Medicare levy surcharge imposed for the years ended 30 June 2008 and 30 June 2010?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2008

Year ended 30 June 2010

The scheme commenced on

1 July 2007

Relevant facts

You received superannuation income and superannuation lump sum payments in the years ended 30 June 2008 and 30 June 2010.

Medicare levy surcharge was imposed on your notice of assessments for the years ended 30 June 2008 and 30 June 2010.

You income for surcharge purposes is more than the relevant threshold.

You did not hold appropriate private health insurance for the 2008 and 2010 financial years.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 4-15.

Medicare Levy Act 1986 Sections 8B to 8G.

Reasons for decision

Taxpayers without adequate private patient hospital cover through health insurance are liable to pay an additional 1% Medicare levy surcharge if their income for Medicare levy surcharge purposes exceed the relevant threshold. For example, a taxpayer without private patient hospital cover who is single and who has no dependants during the income year will pay the Medicare levy surcharge if their income for surcharge purposes exceed $50,000 for the 2007-08 financial year and $73,000 for the 2009-10 financial year.

The Medicare levy surcharge is imposed by sections 8B to 8G of the Medicare Levy Act 1986 (MLA 1986). Separate provisions imposing the surcharge on reportable fringe benefits are located in A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999.

For the 2007-08 financial year, A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999, defines the income for Medicare levy surcharge purposes as being the total of:

· taxable income,

· reportable fringe benefits,

· the net amount on which family trust distribution tax has been paid

· less

· any taxed element of a superannuation lump sum for which the tax rate is zero.

However, for the 2009-10 financial year, the definition is now found in subsection 995-1(1) of the Income Tax Assessment Act 1997. The income for surcharge purposes is the sum of:

· your taxable income,

· your reportable fringe benefits,

· your reportable superannuation contributions,

· your net investment loss,

· less any taxed element of a superannuation lump sum for which the tax rate is zero.

Taxable income equals 'assessable income' minus deductions (section 4-15 of the Income Tax Assessment Act 1997). Your superannuation income and lump sum are included in your assessable income. This income is also considered to be part of your income for surcharge purposes.

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. In this case the taxpayer resigned from his employment and received a lump sum payment and an eligible termination payment. The taxable income for the year ended 30 June 2001 was $138,067. As the taxpayer's taxable income exceeded $50,000 and he had no private health insurance, the Commissioner imposed the Medicare levy surcharge. The taxpayer argued that the imposition of the surcharge was unfair because his taxable income had been inflated by a settlement that was made in unusual circumstances. The AAT held that the Commissioner had no choice but to impose the levy. The clear wording of the MLA 1986 required the 1% surcharge to be imposed on anyone with income exceeding $50,000 where they satisfied the other criteria laid down in section 8B(1) of the MLA 1986. There was no dispute that the taxpayer satisfied those criteria. Further, 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, as outlined in the above case, the legislation has no provision to remit or reduce the Medicare levy surcharge. Furthermore the Commissioner cannot disregard your superannuation payments when calculating your income for the purposes of the Medicare levy surcharge. Therefore you are liable for the Medicare levy surcharge as imposed on your 2007-08 and 2009-10 assessments.