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Ruling

Subject: Medicare levy surcharge

Question

Where only some of the dependants in a family have appropriate health cover and the family Medicare levy surcharge threshold is exceeded, will the Medicare levy surcharge be imposed?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You and your spouse were not both covered by a private health insurance policy for the 2010-11 income year. Only one of you was covered by a private health insurance policy during the 2010-11 income year that provided you with the level of cover required by Australian law.

You and your spouse's combined income for Medicare levy surcharge purposes was above the family Medicare levy surcharge threshold of $154,000.

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 Levy Act 1986 Subsection 3(5)

Medicare Levy Act 1986 Section 8D.

Reasons for decision

Section 251S 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) 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 in the form of the Medicare Levy Surcharge (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) 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.

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).

Your family consists of you and your spouse. In accordance with section 251R and 251V of the ITAA 1936 your spouse is taken to be your dependant. Accordingly, the MLS family threshold will be considered when determining the imposition of the MLS.

As only one of you holds an appropriate health insurance policy and your combined income exceeds the family surcharge threshold, you are both liable to pay the MLS.