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Ruling

Subject: Medicare levy surcharge

Question 1

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

Answer

Yes

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced 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.

You are a resident of Australia for tax purposes.

The combined taxable income of you and your spouse exceeded the family surcharge threshold of $154,000 for the year.

Your taxable income for the year was greater than $18,839.

Your spouse was unable to have a private health insurance policy for the year due to a pre-existing medical condition.

Neither you nor your spouse are, or are taken to be, a prescribed person.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Section 251U(1)(a)

Medicare Levy Act 1986 Section 3A

Medicare Levy Act 1986 Section 8D

Reasons for decision

A liability for the Medicare Levy Surcharge (MLS) generally arises where a person, or any of their dependants, does not have the required private patient hospital cover and the person's taxable income exceeds the threshold amount.

Where the person is regarded as a member of a family, the 'family surcharge threshold' amount applies.  This amount is calculated as a minimum amount of $154,000 for the 2010-11 year and is increased by $1,500 for each dependent child after the first child.

In accordance with section 8D of the Medicare Levy Act 1986 (MLA 1986), a surcharge of 1 per cent of the person's taxable income, which includes reportable fringe benefits amounts, is payable in addition to the amount of Medicare levy otherwise payable where a person satisfies all of the following tests for the whole of the income year:

· the person or at least one of the person's dependants is not covered by an insurance policy that provides private patient hospital cover (and that dependant was not a prescribed person);

· the person is not, or is taken not to be, a prescribed person;

· the combined taxable incomes of the person and the person's spouse exceeds the family surcharge threshold; and

· the person's taxable income exceeds $18,839 for the 2011 financial year.

 Section 251U of the Income Tax Assessment Act 1936 (ITAA 1936) defines prescribed persons as the following:

· taxpayers receiving a blind pension or sickness allowance from Centrelink;

· taxpayers entitled to full free medical treatment under defence force arrangements or Veterans Affairs gold card arrangements;

· taxpayers who are not residents of Australia;

· residents of Norfolk Island;

· members of diplomatic or consular posts who were not Australian citizens and do not normally live in Australia; and

· taxpayers who are not eligible for treatment under the Medicare system.

For surcharge purposes, a married or de facto couple who are living together are treated as a 'family'.  Each spouse is considered to be a dependant of the other, even if they are each in receipt of income from different sources.

A family is not treated as two singles, even where there are no children present.  Both spouses are treated as members of the same family.  For this reason, the family surcharge thresholds apply rather than the single surcharge thresholds.

In your case, your spouse did not have the required private patient hospital cover, neither you nor your spouse was a prescribed person, your combined incomes exceeded the family surcharge threshold of $154,000, and your income exceeded $18,839. 

Therefore, you are liable for the surcharge notwithstanding that you had the required private patient hospital cover for yourself.

Whether the Commissioner has any discretion in relation to the imposition of the MLS was discussed in McCarthy v FC of T 2002 ATC 2204. The Administrative Appeals Tribunal (AAT) held that the Commissioner has no power to remit the MLS imposed on a taxpayer. The taxpayer argued that the imposition of the surcharge was unfair. The AAT held that the Commissioner had no choice but to impose the levy. The clear wording of the MLA 1986 required the 1% surcharge to be imposed on anyone with a taxable income exceeding the relevant threshold and where they satisfied the other criteria laid down in the MLA 1986. There was no dispute that the taxpayer satisfied those criteria. Further, legislation did not include the discretion to waive or modify the surcharge in cases of hardship or other special circumstances, and therefore the surcharge was payable.

While it is appreciated that unfortunately the circumstances of your situation are beyond your control, as outlined above in the AAT case, the legislation has no provision to allow the Commissioner to waive the MLS even where the circumstances resulting in a taxpayer's liability may be beyond their control. This means you will be liable for MLS in your 2010-11 assessment.