Edited version of your private ruling

Authorisation Number: 1012440713351

Ruling

Subject: Medicare Levy Surcharge

Questions and Answers

Was your child a dependant of yours during the year ended 30 June 2010, for the purposes of the Medicare Levy Surcharge?

Yes.

Are you liable for the Medicare Levy Surcharge in respect of your dependant child if that child was not covered by private patient health care?

Yes.

Can a child, whose parents are separated, be a dependant of both parents for Medicare Levy Surcharge purposes, where the child does not have private patient hospital cover and both parents meet the requirements of the Medicare Levy Act 1986?

Yes.

Can two separated parents be liable for the Medicare Levy Surcharge in respect of the same dependant child?

Yes.

Is the Commissioner of Taxation able to exempt you from Medicare Levy Surcharge where you meet the legislative requirements of the Medicare Levy Surcharge, but you have a Court Agreement states that the responsibility for ensuring your child was covered by Private Patient Health Care was that of your former spouse?

No.

This ruling applies for the following periods

1 July 2007 to 30 June 2012

The scheme commences on

1 July 2007

Relevant facts and circumstances

· You are separated from your former spouse.

· You have a child of the marriage.

· Your child resides with you and your former spouse on a 50/50 basis.

· You otherwise contributed to the maintenance of the child.

· You have not indicated whether or not you are a prescribed person under section 251U of the Income Tax Assessment Act 1936.

· You have a Court Agreement with your former spouse that he would provide your child with private patient health care; nonetheless, during the year 30 June 20XX your child was not covered by any policy of either yours, or your former spouse.

· Your family income (the combined total of you and your current spouse) for the year ended 30 June 20XX was greater than the threshold amount for the Medicare Levy Surcharge.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Subsection 251R(3)

Income Tax Assessment Act 1936 Subsection 251R(4)

Income Tax Assessment Act 1936 Subsection 251R(5)

Income Tax Assessment Act 1936 Subsection 251R(6)

Income Tax Assessment Act 1936 Subsection 251R(6B)

Income Tax Assessment Act 1936 Subsection 251R(6C)

Income Tax Assessment Act 1936 Subsection 251R(6D)

Income Tax Assessment Act 1936 Subsection 251U

Income Tax Assessment Act 1936 Subsection 251V

Medicare Levy Act 1986 Section 8C

Medicare Levy Act 1986 Subsection 8C(3)

Medicare Levy Act 1986 Section 8D

Medicare Levy Act 1986 Paragraph 8D(3)(b)

Reasons for decision

Detailed Reasoning:

Medicare Levy Surcharge for taxpayers with one or more dependants

Under sections 8C (applies to taxpayers without a spouse) and 8D (applies to taxpayers with a spouse) of the Medicare Levy Act 1986 (MLA 1986), a taxpayer is liable for the Medicare Levy Surcharge where they satisfy all of the following tests for the whole or part of the year:

· The person has one or more dependants;

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

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

· The combined taxable incomes and reportable fringe benefits of the person and the person's spouse exceeds the family surcharge threshold.

The family surcharge threshold for the year ended 30 June 20XX is $XXX,XXX (plus $X,XXX for each dependant child after the first). This family threshold applies for both singles and couples if a taxpayer has dependants.

The meaning of 'prescribed person' for the purposes of the Medicare Levy is contained within section 251U of the Income Tax Assessment Act 1936 (ITAA 1936), and applies to the following persons:

· A person entitled to full free medical treatment because they were a member of the Defence Force, or was a relative of , or was otherwise associated with a member of the Defence Force; or

· A person entitled to full free medical treatment under the Veterans' Entitlements Act 1986 or the Military Rehabilitation and Compensation Act 2004; or

· A person not a resident of Australia for tax purposes, or who is a resident of Norfolk Island; or

· A recipient under of a sickness allowance under Part 2.14 of the Social Security Act 1991; or

· A blind pensioner; or

· A person who is the head of a diplomatic mission or consular post established in Australia, or a family member or member of staff of the diplomatic head or consular head,

· The Health Minister has certified that the person is not entitled to Medicare benefits.

The meaning of 'dependent' for Medicare Levy purposes is contained in subsection 251R(3) of the ITAA 1936. A person is considered to be a dependent of a taxpayer if:

· The dependent is a resident of Australia at any time during the year of income;

· The taxpayer contributes to the maintenance of that person.

A dependent includes a 'child' of the taxpayer aged under 21 years old. A 'child', as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) includes:

· An adopted child, stepchild or ex-nuptial child of the taxpayer

· A child of the taxpayer's spouse, and

· Someone who is a child of the taxpayer within the meaning of the Family Law Act 1975 (for example, a surrogate child)

As contained within subsection 251R(6) of the ITAA 1936, a person is deemed to have contributed to the maintenance of another person for any period they reside together, unless the contrary is established to the satisfaction of the Commissioner.

Contained within subsections 251R(4), (5), (6B), (6C), and (6D) of the ITAA 1936 are qualifications to the meaning of dependent for the purposes of Medicare levy. An example of this is the exemption in subsection 251R(5) of the ITAA 1936, which contains that where a child would otherwise be treated as a dependent of two parents (e.g. the parents are separated or divorced), the child will only be a dependent of the parent entitled to receive a family allowance under the Social Security Act 1991.

For Medicare Levy Surcharge purposes, section 251V of the ITAA 1936 operates to override these qualifications; the person will be taken to be a dependent for Medicare Levy Surcharge purposes regardless of the qualifications. The effect of this overriding provision is that a child could potentially meet the requirement of dependant for two separated parents, provided both parents meet the requirements of the MLA 1986; both separated parents could then be liable for Medicare Levy Surcharge in respect of the same dependant child.

In the Explanatory Memorandum to the Medicare Levy Amendment Bill (No.2) 1996, the following example is provided as to the operation of section 251V of the MLA 1986:

Mark and Diane are separated and have shared custody of their daughter Melanie. Melanie is a dependant, as defined for surcharge purposes, of both Mark and Diane. Diane has taken out private patient hospital cover for herself and Melanie. Diane is not liable for the surcharge because all members of her family are covered. Mark does not have private patient hospital cover. All the members of Mark's family are not covered. Therefore, Mark will be liable for the surcharge where his taxable income exceeds [the threshold amount].

In your case you have advised,

· You are separated from your former spouse;

· You have a child of the marriage;

· Your child resides with you and your former spouse on a 50/50 basis;

· You otherwise contributed to the maintenance of the child;

· You have a Court Agreement with your former spouse that he would provide your child with private health insurance;

· During the year ended 30 June 20XX your child was not covered by any policy of either yours, or your former spouse; and

· Your family income, with your current spouse, for the year ended 30 June 20XX, was greater than the threshold amount.

Whether the Commissioner of Taxation has discretion to waive Medicare Levy Surcharge once a taxpayer meets the legislative requirements of the Medicare Levy Surcharge was discussed in McCarthy v Federal Commissioner of Taxation 2002 ATC 2204. The AAT, in this case, held that the Commissioner has no provision under tax law to waive or modify the criteria, even in the case of hardship or unfairness.

Based on the facts as advised by you, and the fact that you have not indicated whether or not you are a prescribed person under section 251U of the Income Tax Assessment Act 1936, you are liable for the Medicare Levy Surcharge in respect of your dependant child as you otherwise meet the legislative requirements of section 8D of the MLA 1986 (provided you are not a prescribed person):

· Your child was a dependant of yours for the purposes of the Medicare Levy Surcharge;

· You child was not covered by private patient health care;

· You are not a 'prescribed person';

· Your family income was greater than the threshold amount.

Further, provided your former spouse also met the requirements of the MLA 1986 outlined above, your child could also be considered a dependant of your former spouse, and he would also be liable for the Medicare Levy Surcharge in respect of that same dependant child.