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Ruling

Subject: Medicare levy surcharge, dependent parent tax offset

Question 1:

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

Answer:

No

Question 2:

Can the Commissioner use his discretion not to apply the Medicare levy surcharge for the 2011-12 financial year?

Answer:

No

Question 3:

Are you entitled to claim a dependent parent tax offset in the 2010-11 and 2011-12 financial years?

Answer:

No

This ruling applies for the following periods

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commences on

1 July 2010

Relevant facts and circumstances

Your family income for Medicare levy surcharge purposes is below the threshold for the 2010-11 financial year.

You received a redundancy payment during the 2011-12 financial year which increased your family income for Medicare levy surcharge purposes above the threshold. You maintained private health insurance for yourself but not for your spouse or child.

You are not a prescribed person for Medicare levy purposes

The receipt of the payment also increased your personal income over the threshold to be able to claim the dependent parent tax offset. You currently assist your dependent parent with their housing expenses. Your dependent parent receives a full aged pension.

Relevant legislative provisions

Income Tax Assessment Act 1936 Paragraph 251S(1),

Income Tax Assessment Act 1936 Section 159J,

Medicare Levy Act 1986 Section 3A and

Medicare Levy Act 1986 Section 8D.

Reasons for decision

Medicare levy surcharge

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 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 of the period:

· they are a married person

· their family income for Medicare levy surcharge purposes 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 no dependant children for the 2010-11 financial year is $154,000, and for the 2011-12 financial year is $160,000 (plus $1,500 for each dependent child after the first). The income for Medicare levy surcharge purposes is the sum of the following:

· taxable income

· reportable superannuation contributions

· reportable fringe benefits

· net investment loss

· the amount on which family trust distribution tax has been paid; and

· exempt foreign employment income

In the case of McCarthy v F C of T 2002 ATC 2004, the applicant applied for an exemption from the Medicare levy being imposed. It was determined that the Commissioner had no discretion to not impose the Medicare levy (or the Medicare levy surcharge) as there was no provision in the legislation to do so. Once a taxpayer's income has reached the Medicare levy surcharge threshold the surcharge must be imposed in accordance with the legislation.

In your case, your family income is below the threshold for the 2010-11 financial year, but above the threshold for the 2011-12 financial year.

As your family income for the 2010-11 financial year is below the family threshold of $154,000, you are not liable for the Medicare levy surcharge.

As your family income for the 2011-12 financial year is above the family threshold of $160,000, you are liable for the Medicare levy surcharge in the 2011-12 financial year. As stated above, the Commissioner does not have any discretion not to impose the surcharge.

Dependent parent tax offset

Section 159J of the ITAA 1936 allows a tax offset where you have maintained a dependent. Examples of eligible dependents are a spouse, an invalid relative, a parent or a spouse's parent.

In order to claim a dependent parent tax offset the following criteria must be met:

· the taxpayer and the dependent must both be residents of Australia for tax purposes

· the taxpayer's adjusted taxable income (ATI) must be less than $150,000;

· the dependent's ATI must be less than $6,986 for the 2010-11 financial year and $7,186 for the 2011-12 financial year; and

· you must have provided your dependent with food, clothing or lodging, or helped pay for their living, medical or educational costs.

ATI consists of the following:

· the person's taxable income

· the person's reportable employer superannuation contributions

· the person's deductible personal superannuation contributions

· the person's adjusted fringe benefits

· certain tax-free government pensions or benefits received by the person

· the person's net financial investment loss

· the person's net rental property loss

· any child support payments the person provided to another person

In your case, you dependent parent receives a full aged pension. As the aged pension is considered taxable income, it is included in your dependent parent's ATI. As the amount of the full aged pension is greater than the ATI threshold for your dependent parent, you cannot claim a dependent parent tax offset.