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Ruling

Subject: Medicare levy surcharge

Question 1

Are you liable for the Medicare levy surcharge in the 2010-11 financial year?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Your taxable income was in excess of $XXX,000 for the 2010-11 financial year. You have therefore become liable for the Medicare levy surcharge.

You have held private health insurance with a complying health insurance fund for a number of years. You currently hold a family policy which commenced in 20XX on the day your dependent child turned 21 years of age, and it was decided to continue to include your child on your own policy.

The policy requires an excess of $1,000 per person.

Neither you nor either of your dependants are a prescribed person as defined in section 251U of the Income Tax Assessment Act 1936 (ITAA 1936).

Relevant legislative provisions

Medicare Levy Act 1986 Section 8D,

Medicare Levy Act 1986 Section 3A,

Medicare Levy Act 1986 Subsection 3(5),

Medicare Levy Act 1986 Paragraph 3(5)(b),

Medicare Levy Act 1986 Subsection 3(5B) and

Income Tax Assessment Act 1936 Section 251U.

Reasons for decision

Paragraph 251S(1)(a) of the 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.

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 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 one or less dependant children is $154 000. The threshold is increased by $1500 for each child, excepting the first child.

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 an applicable benefits arrangement within the meaning of section 5A of the National Health Act 1953. Paragraph 3(5)(b) of the MLA 1986 imposes the additional requirement that the family policy excess amounts be capped at $1000 for the whole family for the year.

However, subsection 3(5B) of the MLA 1986 provides that if the person has been covered by the same policy continuously since the end of 24 May 2000 and that cover is not modified after that date, that person is considered to have the appropriate private patient hospital cover while that policy remains in place.

You were covered by the same policy continuously since the end of XX May 2000 until you changed your policy in 20XX on the day your child turned 21.

The family policy provides private patient hospital cover as required by subsection 3(5) of the MLA 1986, however the policy has an excess of $1000 per person. The excess for this family policy exceeds the maximum allowable excess amount permitted by paragraph 3(5)(b) of the MLA 1986.

Therefore, you are not considered to be covered by an insurance policy that provides private patient hospital cover for the purposes of the MLA 1986 for the 2010-11 financial year.