Edited version of private advice

Authorisation Number: 1051779264762

Date of advice: 18 November 2020

Ruling

Subject: Medicare levy surcharge

Question

Are you liable for the Medicare Levy Surcharge (MLS) for the entire 20XX-XX financial year (20XXFY)?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a resident for tax purposes.

You are not in the Defence Force.

You were covered for private hospital insurance for part of the 20XXFY.

Your spouse was not covered by the health insurance policy and does not have their own.

Your taxable income and your partners income was sufficient enough that it falls into one of the three tiers of income thresholds to determine the rate of your MLS liability.

Relevant legislative provisions

Sub-paragraph 251R(3)(b)(i) of the Income Tax Assessment Act 1936. (ITAA 1936)

Section 251U of the ITAA 1936

Section 3A of the Medicare Levy Act 1986. (Medicare Act)

Subsection 8D(1) of the Medicare Levy Act 1986.

Subsection 8D(2) of the Medicare Levy Act 1986.

Subsection 8D(3) of the Medicare Levy Act 1986.

Subsection 8D(4) of the Medicare Levy Act 1986.

Subsection 8D(5) of the Medicare Levy Act 1986.

Subdivision 22-B of the Private Health Insurance Act 2007. (PHIA 2007).

Reasons for decision

Summary

You are liable for the Medicare Levy Surcharge (MLS) for the entire 20XX-XX financial year (20XXFY).

Detailed reasoning

Medicare Levy Surcharge

Subsection 8D(1) of the Medicare Levy Act 1986 (Medicare Act) applies if:

•         you are a married person; and

•         you, or at least one of your dependants, are not covered by an insurance policy that provides private patient hospital cover; and

•         you are not a prescribed person as defined in section 251U of the ITAA 1936.

Sub-paragraph 251R(3)(b)(i) of the Income Tax Assessment Act 1936 (ITAA 1936) defines dependants to include spouses for the purpose of the Medicare Levy Surcharge (MLS).

Subsection 8D(2) of the Medicare Act provides that you are exempt from paying MLS provided you and your dependant/s are covered by an appropriate level of private health insurance regardless of your level of income.

The main categories of prescribed persons as defined in section 251U of the ITAA 1936 are:

•         A member of the Defence Force

•         A veterans' (repatriation) beneficiary

•         A non-income tested health card holder

•         A non-resident of Australia

•         A foreign government representative

•         A person certified by the Minister of Health as not being entitled to Medicare benefits.

Subsection 8D(3) of the Medicare Act provides the amount of Medicare levy payable by you is increased by 1% of your taxable income and reportable fringe benefits if:

•         You are married for the whole year; and

•         Your income and your spouse's income for surcharge purposes exceeds your family Tier 1 threshold; and

•         Your income for surcharge purposes exceeds $22,801.

Paragraphs 8D(4A) and 8D(4B) of the Medicare Act, require you to increase the 1% Medicare levy payable by .25% or .5% if your total income calculated for surcharge purposes falls in Tier 2 or Tier 3, respectively as determined in subsections 8D(3) and (5) of the Medicare Act.

This increase in the amount of Medicare levy payable is commonly known as the Medicare levy surcharge (MLS).

Section 3A of the Medicare Act defines the Tier thresholds in the determination of the liability of the Medicare Levy and Surcharge by directing you to subdivision 22-B of the Private Health Insurance Act 2007 (PHIA 2007).If your income for surcharge purposes does not fit into any of the Tier categories, you would not be liable for the MLS.

Application to your circumstances

Subsection 8D(1) of the Medicare Act applies to you because:

•         You are married: and

•         Your spouse is not covered by your health insurance policy and therefore does not have an appropriate level of private patient hospital cover; and

•         As you are a resident for tax purposes and not a member of the Defence Force you are not a prescribed person as defined in section 251U of the ITAA 1936.

Subsection 8D(2) of the Medicare Act does not provide an exemption for you from the MLS because your private health insurance did not cover you for the whole year and nor did it provide any cover for your spouse at any time over the whole year.

You will be liable for the MLS for the whole year due to your spouse not having an appropriate level of cover for the entire year.

Your income combined with your spouse's is sufficient enough for you to exceed your family Tier 1 threshold and your own income for surcharge purposes exceeds $22,801. This means that you are liable to pay the MLS as determined by Subsection 8D(3) of the Medicare Act and paragraphs 8D(4A) and 8D(4B) of the Medicare Act, where necessary, as described earlier.

Subsection 8D(3) and (5) of the Medicare Act determines which Tier will apply for surcharge purposes, and this is dependent on the taxable income and other income for both you and your partner.