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Ruling

Subject: Medicare levy surcharge

Question

Are you required to pay the Medicare levy surcharge (MLS) where your family income exceeds the family surcharge threshold?

Answer

Yes.

This ruling applies for the following periods

Year ended 30 June 2010
Year ended 30 June 2011

The scheme commenced on

1 July 2008

Relevant facts and circumstances

Your family consists of your spouse, your child and yourself.

You have a private health insurance policy for your child and yourself which provided you both with the level of cover required by Australian law.

Your spouse is a citizen of another country and is a permanent resident of Australia. They have a Medicare card.

Your spouse has private health insurance coverage through an international fund.

Their health insurance coverage includes health expenses incurred anywhere in the world and includes cover for hospital stays.

Their health insurance policy is not a complying policy.

Your combined family income exceeded the family surcharge threshold in the 2009/10 and 2010/11 financial years.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 251R
Income Tax Assessment Act 1936 Section 251S
Income Tax Assessment Act 1936 Section 251U
Income Tax Assessment Act 1936 Section 251V

Medicare Act 1986 Subsection 3(5)
Medicare Act 1986 Section 8B
Medicare Act 1986 Section 8D

Reasons for decision

Summary

You are liable to pay the MLS where your family income exceeds the family surcharge threshold as your spouse is considered to be your dependant and their private health insurance coverage does not meet the requirements of the Medicare Levy Act 1986 (MLA).

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 MLA on the taxable income of a person who is a resident of Australia.

Section 8D of the MLA imposes an increase in the Medicare levy (the MLS) for a married person for the period they or any of their dependants, who are not prescribed persons, are not covered by an insurance policy that provides private patient hospital cover and their combined income exceeds the family surcharge threshold.

A prescribed person is defined in section 251U of the ITAA 1936 as:

· a person entitled to full free medical treatment as a Defence Force member or as a relative of, or as a person associated with, a Defence Force member

· a person entitled under veterans' entitlement or military rehabilitation and compensation (repatriation) legislation to full free medical treatment

· a blind pensioner or a sickness allowance recipient

· a person who is not a resident of Australia for tax purposes, or a person who is a resident of Norfolk Island

· a person who is attached to a diplomatic mission or consular post established in Australia or a household member of the person's family, provided the person is not an Australian citizen and is not ordinarily resident in Australia

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

Subsection 3(5) of the MLA provides 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)) that covers hospital treatment, and does not have an annual excess of more than $500 for singles or more than $1,000 for couples/families. Note: the PHIA came into effect on 1 April 2007. Prior to this date private health insurance policies were required to be registered under the National Health Act 1953.

Under subsection 8D(3) of the MLA where the period which a person qualifies for the MLS is the whole of the income year if the sum of the person's and their spouse's taxable incomes and reportable fringe benefits (if any) exceeds the family surcharge threshold, a MLS of 1% of the person's taxable income is payable.

Subsection 8D(1) of the MLA states that a dependant for the purposes of the MLS is determined by sections 251R and 251V of the ITAA 1936. Those sections provide that a person is a dependant of a taxpayer if the person, whose maintenance the taxpayer contributes to, is a resident of Australia and is:

· the spouse of the taxpayer

· a child of the taxpayer less than 21 years of age

· a child of the taxpayer who is not less than 21 years of age but less than 25 years of age and receiving full-time education at a school, college or university (regardless of the level of separate net income).

In your case, you are a resident of Australia who has two resident dependants - your spouse and your child - for the purposes of the MLS. Neither you nor your dependants are prescribed persons.

You and your child are both covered by a complying Australian health insurance policy. Your spouse's health insurance policy is with an overseas private health insurance fund and is not a complying policy within the meaning of the PHIA.

Your spouse's 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. His policy was described as providing "private health cover to the highest possible standard in terms of its diverse coverage of medical complaints, a zero excess and its global nature". It was determined that whilst Mr Fraser possessed health insurance coverage and was not a burden on the public health system, this was not the criteria adopted by the legislation which imposes the MLS. As his fund was not of the Register of Health Benefits Organizations his membership could not satisfy the requirements of section 8B of the MLA so as to avoid the surcharge.

Note: section 8B of the MLA imposes the MLS on an unmarried taxpayer without dependants. Its basis is similar to that of section 8D of the MLA which relates to married taxpayers.

Your spouse's private health insurance policy does not meet the definition of a complying health insurance policy for the purposes of the MLS. Therefore they are not considered to have an appropriate health insurance policy.

As your spouse does not have an appropriate health insurance policy and your combined income exceeds the family surcharge threshold, you are liable to pay the MLS