Edited version of your written advice

Authorisation Number: 1012901646222

Date of advice: 28 October 2015

Ruling

Subject: Medicare levy surcharge, private health insurance rebate

Question 1

Are you exempt from the Medicare levy for the period prior to you obtaining permanent residency?

Answer

Yes

Question 2

Are you liable for the Medicare levy surcharge for the remainder of the 20XX-YY financial year?

Answer

Yes

Question 3

Are you entitled to a private health insurance rebate?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

You are a resident of Australia for tax purposes. During the 20XX-YY financial year you also became a permanent resident of Australia for immigration purposes.

You have received a Medicare levy exemption certificate for the period prior to becoming a permanent resident.

You maintained overseas visitor health insurance cover for all of the 20XX-YY financial year.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 251S

Income Tax Assessment Act 1936 Section 251T

Income Tax Assessment Act 1936 Section 251U

Medicare Levy Act 1986 Section 8D

Medicare Levy Act 1986 Section 3

Private Health Insurance Act 2007 Part 2-2

Reasons for decision

Question 1

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) on the taxable income of a person who at any time during the year was a resident for tax purposes.

However section 251T of the ITAA 1936 states that the Medicare levy is not payable by a person who is a prescribed person.

Section 251U of the ITAA 1936 states that prescribed persons includes taxpayers who are not entitled to benefits under the Medicare system who have received a certificate of exemption from the Department of Health.

In your case, you have received a Medicare levy exemption certificate for the period prior to you becoming a permanent resident. You are therefore exempt from the Medicare levy for this period.

Question 2

Section 8D of the MLA 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

• the family income (total taxable income and reportable fringe benefits) 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.

As stated above, you were a prescribed person under Section 251U of the ITAA 1936 for the period prior to you becoming a permanent resident. You are therefore exempt from the Medicare levy surcharge for this period.

Subsection 3(5) of the MLA 1986 states that private patient hospital cover is provided if the insurance policy held by the taxpayer is a complying health insurance policy within the meaning of the Private Health Insurance Act 2007 (PHA) that covers hospital treatment within the meaning of that Act; and any excess payable is no more than $500 for a single person or $1000 for any other policy.  

The Private Health Insurance Ombudsman advises that an Overseas Visitors Policy is not considered a complying health insurance policy as per the definition in the PHA.  

It follows that an Overseas Visitors Policy does not provide private patient hospital cover within the meaning of section 3(5) of the MLA 1986. 

Accordingly, you will be liable to pay the Medicare levy surcharge for the period after you became a permanent resident of Australia.

Question 3

Taxpayers who pay private health insurance policy premiums may be entitled to a rebate under Part 2-2 of the PHA.

A taxpayer will be eligible for a rebate where:

• You have a complying health insurance policy with an Australian registered health insurer

• You are eligible for Medicare

• You are a private health insurance incentive beneficiary; and

• Your income is below the appropriate threshold.

In your case, as discussed earlier, an overseas visitor health insurance policy is not considered to be a complying health insurance policy.

You are therefore not entitled to a private health insurance rebate.