Edited version of your private ruling

Authorisation Number: 1012534370604

Ruling

Subject: Medicare levy surcharge

Question 1

Are you an Australian resident for tax purposes during your overseas stay?

Answer

Yes.

Question 2

Does your insurance policy qualify as a complying health insurance policy for Medicare levy surcharge purposes?

Answer

No.

Question 3

Are you entitled to an exemption for the Medicare levy surcharge?

Answer

No.

Question 4

Can the Commissioner remit or reduce the Medicare levy surcharge imposed for the year ended 30 June 2012?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts

You are an Australian citizen.

You travelled overseas with your family for a few months.

You were covered by an insurance policy for medical expenses. Insurance policy A is with an Australian company which provides medical insurance whilst overseas.

The overseas medical system also covered you and your family.

A letter from your employer stated that you and your family would be covered for the period you would be away from Australia.

On that basis you suspended your normal private health insurance.

You were not aware that you may be liable for Medicare levy surcharge because of this.

As your family were with you, you did not have any dependents who had access to Medicare treatment during your time overseas.

While overseas, you rented your home to friends and left your car locked up.

You do not have family or assets in country A.

You found your own rented accommodation while overseas.

Medicare levy surcharge was imposed on your 2011-12 assessment for the period you were overseas.

Your taxable income for the 2011-12 income year was above $160,000.

Relevant legislative provisions

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

Income Tax Assessment Act 1936 Section 251R.

Income Tax Assessment Act 1936 Section 251S.

Income Tax Assessment Act 1936 Section 251U.

Medicare Levy Act 1986 Sections 8B to 8G.

Reasons for decision

Residency

Residency status is a question of fact. Your residency status is relevant in determining your liability to Australian income tax.

The term Australian resident is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Subsection 6(1) of the ITAA 1936 provides four tests to determine whether a person is a resident of Australia for income tax purposes. These tests are:

· the resides test;

· the domicile and permanent place of abode test;

· the 183 day test; and

· the Commonwealth superannuation fund test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

The Macquarie Dictionary defines 'reside' as to dwell permanently or for a considerable time, have ones abode for a time.

The Shorter Oxford English Dictionary defines 'reside' as to dwell permanently, or for a considerable time, to have ones settled or usual abode, to live in or at a particular place.

In your case, you lived overseas for a few months. Although you own assets in Australia, you were not physically present here. We consider that you were not residing in Australia for this period. Consequently you do not satisfy the 'resides test' and therefore it is necessary to consider the other residency tests.

The domicile test and permanent place of abode

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

In order to show that a new domicile of choice in a country outside Australia has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country.

You were overseas for a few months and did not intend to make your home indefinitely in country A. You are an Australian citizen and it is considered that your domicile is here.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. 

The expression 'place of abode' refers to a person's residence, where one lives with one's family and sleeps at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

Taxation Ruling IT 2650 provides that the following factors are considered in determining a taxpayer's permanent place of abode:

· the intended and actual length of stay in the overseas country

· any intention to stay in the overseas country only temporarily and then either to return to Australia at some definite point in time or to travel to another country

· the establishment of a home outside Australia

· the abandonment of any residence or place of abode in Australia

· the duration and continuity of presence in the overseas country, and

· the durability of association with a particular place in Australia.

IT 2650 states that as a general proposition, an overseas stay for a duration of less than two years would be considered as being of a transitory nature. 

In your case your time overseas was temporary only. Your overseas accommodation was for a relatively short period.

Although your house in Australia was rented while you were overseas, you have not established a home outside Australia.

As you have not established a permanent place of abode outside Australia during the time overseas, and your domicile remains in Australia, you are considered to be a resident of Australia for income tax purposes under the domicile test. 

As you satisfy the domicile test, there is no need to consider the other two tests.

Medicare Levy Surcharge (MLS)

Paragraph 251S(1)(a) of the ITAA 1936 provides that a Medicare levy is levied at the rate applicable in the Medicare Levy Act 1986 (MLA) on the taxable income of a person who is a resident of Australia.

Section 8D of the MLA imposes an increase in the Medicare Levy (the Medicare levy surcharge) for a married person for the period they or any of their dependants, who are not prescribed persons, are not covered by an insurance policy that provides private patient hospital cover.

A prescribed person, as defined in section 251U of the ITAA 1936, is:

a person entitled to full free medical treatment as a Defence Force member or as a relative of, or as a person associated with, a Defence Force member

a person entitled under veterans' entitlement or military rehabilitation and compensation (repatriation) legislation to full free medical treatment

a blind pensioner or a sickness allowance recipient

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

a person who is attached to a diplomatic mission or consular post established in Australia or a household member of the person's family, provided the person is not an Australian citizen and is not ordinarily resident in Australia

a person certified by the Health Minister as not being entitled to Medicare benefits.

You and your family are not prescribed persons.

Subsection 3(5) of the MLA 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 2007)) 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.

Insurer A does not appear on the PHIAC's website. Therefore this policy is not a complying health insurance policy within the meaning of the PHIA 2007 and does not satisfy the requirement of subsection 3(5) of the MLA.

While we accept that you have private patient hospital cover with Insurer A, your policy is not a complying policy for MLS purposes. That is, your health cover is not provided by an insurance policy issued by a registered health insurer for hospital treatment in Australia.

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

The relevant combined income thresholds for MLS purposes for people who have a dependent are:

For year ending 30 June 2012 $160,000

For year ending 30 June 2013 $168,000

In your case, your income for MLS purposes exceeds the relevant threshold.

Whether the Commissioner has any discretion in relation to the imposition of the Medicare levy surcharge 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 Medicare levy surcharge 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 surcharge to be imposed. Furthermore, the 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.

We acknowledge your specific circumstances, however, the legislation has no provision to remit or reduce the MLS. There are no exemptions that apply to your specific circumstances, therefore you are liable for the MLS for the 2011-12 income year. You will also be liable for the MLS in the 2012-13 income year if your income is above the relevant threshold.