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Ruling

Subject: Private health insurance tax offset and Medicare levy surcharge

Question 1

Are you entitled to claim the private health insurance tax offset for the period you were covered by private health insurance from an overseas health fund?

Answer: No

Question 2

Are you liable for the Medicare levy surcharge (MLS) where you do not have the required private patient hospital cover?

Answer: Yes.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ending 30 June 2012

The scheme commenced on:

1 July 2008

Relevant facts

You are retired.

You voluntarily contributed to an overseas health fund.

You receive an allocated pension.

You and your spouse are Australian residents.

You and your family are covered by the overseas health fund.

Your overseas health fund does not appear on the Private Health Insurance Administration Council (PHIAC) website.

You and your spouse's combined taxable income is above the family threshold amount for MLS purposes.

Neither you nor your spouse or dependants are prescribed persons for the purposes of the Medicare levy.

You have a number of children.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 61-205(1)

Medicare Levy Act 1986 subsection 3(5)

Medicare Levy Act 1986 section 8D

Reasons for decision

Private health insurance tax offset

Subsection 61-205(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states; if you are an individual (other than an individual in the capacity of an employer), you are entitled to a tax offset for the 2007-08 income year or a later income year if:

(a) a premium, or an amount in respect of a premium, was paid by you, or by your employer as a fringe benefit for you, under a complying private health insurance
policy (within the meaning of the Private Health Insurance Act 2007 (PHIA 2007)), on or after 1 July 2007, and

(b) the premium, or amount in respect of a premium, was paid during the income year, and

(c) each person insured under the complying health insurance policy during the period covered by the premium or amount is, for the whole of the time that he or she is insured under the policy during that period, an eligible person within the meaning of section 3 of the Health Insurance Act 1973, or treated as such because of section 6, 6A or 7 of that Act.

The 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.

We acknowledge that you are seeking to have registered the overseas health fund with PHIAC; however, there is no discretion under the current legislation to allow a private health insurance tax offset as your health insurance provider does not appear on the PHIAC's website.

Therefore, the overseas health fund is not a complying health insurance policy within the meaning of the PHIA 2007.

Accordingly, you were not entitled to the private health insurance tax offset under subsection
61-205(1) of the ITAA 1997.

Medicare Levy Surcharge

A liability for the MLS arises where a person, or any of their dependants, does not have the required private patient hospital cover and the person's taxable income exceeds the threshold amount. 

Where the person is regarded as a member of a family, the 'family surcharge threshold' amount applies. The following family threshold amounts apply:

Section 8D of the Medicare Levy Act 1986 (MLA) provides that the amount of Medicare levy payable by a married person is increased by 1% of the person's taxable income (the surcharge) if:

§ the sum of their income and the income of their spouse for surcharge purposes exceeds the family surcharge threshold;

§ their income for surcharge purposes exceeds the amount specified in paragraph 8D(3)(c) of the MLA

§ 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 of the Income Tax Assessment Act 1936 (ITAA 1936).

An appropriate level of private patient hospital cover is cover provided by an insurance policy issued by a registered health insurer for hospital treatment in Australia.

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 PHIA 2007) that covers hospital treatment.

MLS liability

In your case, you and your spouse are residents of Australia. Your overseas health cover is not private patient hospital cover for the purposes of subsection 3(5) of the MLA.

Accordingly, you will be liable for the surcharge in a financial year where your individual income for surcharge purposes is above the individual threshold amounts and the combined income of you and your spouse is above the family threshold amount. There is no provision in the legislation that exempts a person from the MLS where a person does not have the required private patient hospital cover.