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Ruling

Subject: Medicare levy surcharge

Questions and answers:

Will you be liable for the Medicare levy surcharge for part of the 2009-10 income year?

Yes.

Will you be liable for the Medicare levy surcharge for part of the 2010-11 income year?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on:

1 July 2009

Relevant facts

You were born in Australia and are an Australian citizen.

You have a spouse and children who are minors.

You are a 'prescribed person'.

You received a posting overseas.

You, your spouse and your children departed Australia for the duration of the posting.

Your spouse is not a prescribed person and remained a resident of Australia for income tax purposes during your overseas posting.

While posted overseas you suspended your Australian private health insurance policy in favour of taking out overseas private health insurance.

Your overseas health care policy provided health cover (including hospital cover) to you, your spouse and your children.

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

Income Tax Assessment Act 1936, Section 251VA

Medicare Levy Act 1986, Section 3A

National Health Act 1953

Reasons for decision

Medicare levy surcharge

A liability for the Medicare levy surcharge (MLS) arises where a person, or any of their dependants, does not have the required private patient hospital during the income year.

The National Health Act 1953 (NHA 1953) states that a health insurance policy only provides the necessary cover if the organisation providing the cover is registered with the Register of Health Benefits Organisation. We have confirmed that your overseas insurer is not a registered health fund (this information is available on www.phiac.gov.au).

In your case, you and your family were covered by private health insurance in Australia prior to your departure, before suspending your cover. Therefore, you will not be liable for the Medicare levy surcharge for period prior to your departure.

During your overseas posting you took out private health cover with an overseas insurer that provided full medical cover (including hospital cover) for you and your family. However as your overseas insurer is not a registered health fund in Australia under the Health Act, you do not have appropriate private patient hospital cover for the purposes of the Medicare levy surcharge.

Dependants

A dependant of a taxpayer is defined in subsection 251R(3) of the ITAA 1936 to include a person who was a resident Australian spouse of a taxpayer and the taxpayer contributed to their maintenance. A person who resides with another person is presumed to contribute to the maintenance of that other person (subsection 251R(6) of the ITAA 1936).

Where a person is a dependant of a taxpayer and is liable to the Medicare levy on their taxable income in the year of income, subsection 251R(6B) of the ITAA 1936 provides that the person will be deemed not to be a dependant of the taxpayer. As your spouse will be liable to the Medicare levy on their own income, your spouse is not treated as your dependant for Medicare levy purposes.

However, for the purposes of the Medicare levy surcharge, section 251V of the ITAA 1936 provides that subsection 251R(6B) of the ITAA 1936 does not apply. Therefore, a resident Australian spouse is a dependant of the taxpayer for Medicare levy surcharge purposes.

Therefore, your spouse and children are your dependants for Medicare levy surcharge purposes under subsection 251R(3) of the ITAA 1936.

Prescribed persons

A 'prescribed person' is defined in paragraph 251U(1) however, a person will not be a 'prescribed person' if any of their dependants are not prescribed persons (subsection 251U(2) of the ITAA 1936).

Therefore, as not all members of your family are 'prescribed persons', you are also not a 'prescribe person' for the purposes of the Medicare levy surcharge.

Conclusion

In your case, you are married with children. Your spouse and children are dependants for the purposes of the Medicare levy surcharge. When you travelled overseas with your spouse and children to take up your overseas posting you suspended your Australian health insurance cover in favour of full medical cover with an overseas insurer. However as the overseas insurer is not a registered health fund in Australia under the Health Act, you do not have appropriate private patient hospital cover for the purposes of the Medicare levy surcharge.

Although you could be a 'prescribed person' because your spouse and dependants are not a 'prescribed person' you are not a prescribed person for the purpose of the Medicare levy surcharge.

Therefore as you have a spouse and children, if your family income exceeds the Medicare levy thresholds for the years included in this ruling you will be liable for the Medicare levy surcharge for period that your Australian health insurance cover was suspended.