Edited version of your private ruling

Authorisation Number: 1012463923331

Ruling

Subject: Medicare levy and Medicare levy surcharge

Question 1

Are you required to pay the Medicare levy where your combined family income exceeds the threshold?

Answer

Yes.

Question 2

Does your international health insurance policy qualify as a complying heath insurance policy for the Medicare levy surcharge (MLS) purposes?

Answer

No.

Question 3

Are you required to pay the MLS where you do not hold appropriate health cover and your family income exceeds the threshold amount?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commences on

1 July 2011

Relevant facts and circumstances

You are a resident of Australia for tax purposes.

You entered Australia under a subclass 457 (temporary business long stay) visa.

You have now been granted permanent residency by the Department of Immigration and Citizenship (DIAC)

Subclass 457 visa holders are subject to visa condition 8501. Condition 8501 requires all visa holders, including accompanying family members, to maintain adequate arrangements for health insurance for the duration of their stay in Australia.

You provided a letter to DIAC which stated you and all your family members had medical coverage which complied with condition 8501.

Relevant legislative provisions

Income Tax Assessment Act 1936 Part VIIB

Income Tax Assessment Act 1936 Section 251R

Income Tax Assessment Act 1936 Section 251S

Income Tax Assessment Act 1936 Section 251T

Income Tax Assessment Act 1936 Subsection 251U(1)

Income Tax Assessment Act 1936 Section 251V

Medicare Levy Act 1986 Subsection 3(5)

Medicare Levy Act 1986 Section 8B

Medicare Levy Act 1986 Section 8D

Reasons for decision

The imposition and collection of the Medicare levy is governed by Part VIIB of the Income Tax Assessment Act 1936 (ITAA 1936) and the Medicare Levy Act 1986 (MLA 1986). A fundamental objective of the legislation is to integrate collection of the levy with the collection of income tax.

Section 251S of the ITAA 1936 provides that a Medicare levy is payable by an individual who is a resident of Australia at any time during the income year and is calculated at 1.5 per cent of the taxpayer's taxable income for the year.

Section 251T of the ITAA 1936 provides for a full or partial exemption from the levy to persons who qualify as prescribed persons. Prescribed persons are listed in subsection 251U (1) of the ITAA 1936 and include:

· members of the Defence forces and Veteran Affairs who are entitled to full free medical treatment

· residents of Norfolk Island or non Australian residents

· blind pensioners or recipients of a sickness allowance from Centrelink

· diplomats and consular officials who are not citizens and not normally residents of Australia, and

· persons who hold a certificate from Medicare Australia showing they are not entitled to Medicare benefits.

If you, your spouse and dependent children do no fall under any of the above exemption categories and you have a combined family income that exceeds $45,596 you will be liable for the Medicare levy.

Holding private health insurance has no impact on the imposition of the Medicare levy. The imposition of the Medicare levy is based on the level of income earned.

Medicare levy surcharge (MLS)

The MLS is in addition to the Medicare levy. The MLS is payable if you or your dependants, who are not prescribed persons (including your spouse, even if they had their own income), did not have an appropriate level of private patient hospital cover for the whole of the 2011-12 financial year and your taxable income was above the surcharge threshold amount.

A dependent, regardless of their income includes (defined in section 251R of the ITAA 1936) :-

· your spouse, even if they worked during the 2011-12 financial year or had their own income

· your children under 21 years old

· your children who are 21 years old or older and under 25 years old who are full-time students.

Subsection 3(5) of the MLA 1986 states that a person is covered by an insurance policy that provides private patient hospital cover if the policy is a complying health insurance policy (within the meaning of the Private Health Insurance Act 2007 (PHIA)) that covers hospital treatment, and any excess payable in respect of benefits under the policy is no more than $1,000 in any 12 month period, for policies that cover more than one person.

The Private Health Insurance Administration Council (PHIAC) administers the PHIA 2007 and maintains on its website (www.phiac.gov.au) an up to date record of all private health insurers providing complying policies.

Your health insurance policy is with an overseas private health insurance fund and does not appear on the PHIAC's website. Therefore this policy is not a complying policy within the meaning of the PHIA 2007 and does not satisfy the requirement of subsection 3(5) of the MLA 1986.

Your situation is similar to that of the taxpayer in Adam Fraser v. Commissioner of Taxation [2000] AATA 738. In that case Mr Fraser was a member of BUPA International. His policy was described as providing "private health cover to the highest possible standard in terms of its diverse coverage of medical complaints, a zero excess and its global nature". It was determined that whilst Mr Fraser possessed health insurance coverage and was not a burden on the public health system, this was not the criteria adopted by the legislation which imposes the MLS. As his fund was not on the Register of Health Benefits Organizations his membership could not satisfy the requirements of section 8B of the MLA so as to avoid the surcharge.

Where a person does not have private patient hospital cover with a complying fund, they are liable to pay an additional 1 per cent Medicare levy surcharge if their income, for Medicare levy surcharge purposes, exceeds the relevant threshold.

Section 3A of the MLA 1986 provides that the family surcharge threshold for a family with two dependant children 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

Therefore, if you and all your dependents do no fall under any of the above exemption categories and your income for the Medicare levy surcharge exceeds the relevant threshold you will be liable for the Medicare levy surcharge.

The Commissioner has no discretion to waive or reduce your liability for the Medicare levy (or the Medicare levy surcharge) as there is no provision in the legislation to do so. Once the income of a taxpayer, who does not hold the appropriate health cover, reaches the Medicare levy surcharge threshold the surcharge must be imposed in accordance with the legislation.