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Ruling

Subject: Dependant for Medicare levy surcharge purposes

Question

Is your child a dependant for Medicare levy surcharge purposes after they turn 21?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts

You are a single parent with a child currently aged 20. Your child is disabled and receives a Centrelink support pension.

Your child will turn 21 in the 2012-13 income year.

Your child is not a full time student.

Your child will still be dependent on you for financial support to meet their extensive health, caring and physical needs.

Your child resides with you.

Your income for surcharge purposes is expected to be more than $X.

You and your child are Australian residents.

You or your child do not have private hospital cover.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax Assessment Act 1936 Section 251R.

Medicare Levy Act 1986 Sections 8B to 8G.

Reasons for decision

Taxpayers without adequate private patient hospital cover through health insurance are liable to pay an additional Medicare levy surcharge if their income for Medicare levy surcharge purposes exceed the relevant threshold.

The Medicare levy surcharge is imposed by sections 8B to 8G of the Medicare Levy Act 1986 (MLA 1986).

For the 2012-13 income year, individual taxpayers with no dependants during the year whose income for Medicare levy surcharge purposes is more than $84,000 for the year and do not have private patient hospital cover are generally liable for the Medicare levy surcharge.

For single taxpayers with a dependent child, where their income for Medicare levy surcharge purposes is more than the family threshold of $164,000 for 2012-13 income year and they do not have private patient hospital cover, then they are generally liable for the Medicare levy surcharge.

From 1 July 2012, the following applies:

· Tier 1: singles whose income for surcharge purposes is from $84,001 to $97,000 inclusive, and couples/families whose income for surcharge purposes is from $168,001 to $194,000, the Medicare levy surcharge will remain at 1%.

· Tier 2: singles whose income for surcharge purposes is from $97,001 to $130,000 inclusive, and couples/families whose income for surcharge purposes is from $194,001 to $260,000, the Medicare levy surcharge will increase to 1.25%

· Tier 3: singles whose income for surcharge purposes is from $130,001 and over, and couples/families whose income for surcharge purposes of $260,001 and over, the Medicare levy surcharge will increase to 1.5%.

Income for Medicare levy surcharge purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997. The income for surcharge purposes is the sum of:

· your taxable income,

· your reportable fringe benefits,

· your reportable superannuation contributions,

· your net investment loss,

· less any taxed element of a superannuation lump sum for which the tax rate is zero.

As outlined in section 251R of the Income Tax Assessment Act 1936, a person shall be taken to have been a dependant of another person for the purposes of the Medicare levy surcharge during any part of the year of income in which-

(a) the first-mentioned person was a resident of Australia;

(b) the first-mentioned person was -

(i) the spouse of the other person;

(ii) a child of the other person less than 21 years of age; or

(iii) a child of the other person 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; and

(c) the other person contributed to the maintenance of the first-mentioned person.

As your child is not a full time student, after they turn 21, they will not be regarded as a dependant for Medicare levy surcharge purposes.

We acknowledge your specific circumstances, however, the legislation has no provision to expand the definition of dependant to include your child after they turn 21.

Where a taxpayer's circumstances change during the income year, the surcharge liability is determined separately in respect of each portion of the year. That is, the Medicare levy surcharge is calculated on a per day basis if a taxpayer's circumstances change during a year. Therefore before your child turns 21, they are regarded as your dependent and the family threshold is relevant. However after your child is 21, the single threshold amount is relevant. Therefore where your income for Medicare levy surcharge purposes is over $84,000 for the 2012-13 income year, you will be liable for Medicare levy surcharge for the days after your child's birthday.