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Ruling

Subject Medicare levy surcharge

Question

Are you liable for the Medicare levy surcharge in the 2010 -11 financial year for the period from when you became eligible for Medicare benefits until the time you took out the required private patient hospital cover?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You immigrated to Australia and became a resident for tax purposes.

You commenced Medicare cover soon after becoming a resident.

You took out private health cover with a registered Australian health insurer over 6 months after receiving the Medicare cover.

You have held private health insurance with an overseas insurer all your life and at present have a policy with them which does not cover you for hospitalisation in Australia.

In the event that you required hospital treatment it was your intention to seek it in your country of origin where you have friends and family, and any hospitalisation in Australia would have been of a temporary nature.

Your taxable income for the year exceeded the relevant Medicare levy surcharge threshold.

Reasons for decision

Paragraph 251S(1)(a) 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 of income was a resident.

Section 8B of the MLA 1986 provides that the amount of Medicare levy payable by a taxpayer is increased where:

· the taxpayer's income for surcharge purposes exceeds the single surcharge threshold for the year of income; and

· the taxpayer:

· is not a married person (or treated as if married under subsection 251R(2) of the ITAA 1936)

· does not have dependents;

· does not have private patient hospital cover; and

· is 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.

You were a resident and eligible for Medicare benefits during the period in question.

Based on the information you have provided, you were not a prescribed person during the period in question.

Subsection 3(5) of the MLA 1986 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 PHIA 2007) that covers hospital treatment (within the meaning of the PHIA 2007) and, for a policy under which only one person is insured, any excess payable is not more than $500 in any 12 month period.

Your overseas health insurer is not listed on the register of health funds under the Private Health Insurance Act 2007 (PHIA 2007).

As your health insurance policy with the overseas health insurer is not a complying health insurance policy under the PHIA 2007, during the period in question you were not covered by a policy that provided private patient cover within the meaning of subsection 3(5) of the MLA 1986. That is, you did not have the required private patient hospital cover.

As your income for surcharge purposes exceeds the relevant surcharge threshold for the year of income, you are liable to pay the surcharge under section 8B of the MLA 1986, for the period from when you became eligible for Medicare benefits until the time you took out the required private patient hospital cover.

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. The taxpayer argued that the imposition of the surcharge was unfair in their 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 a taxable income exceeding the relevant threshold and where they satisfied the other criteria laid down in 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.

As outlined in the above case, the legislation has no provision to waive or remit the Medicare levy surcharge. Therefore, the Commissioner is not able to waive or remit your liability to the Medicare levy surcharge.