Edited version of private advice

Authorisation Number: 1052064346656

Date of advice: 30 November 2022

Ruling

Subject: Medicare levy surcharge

Question

Were you married for the whole of the income year ended 30 June 20XX for the purposes of the Medicare levy surcharge?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your spouse married many years ago.

You have several children.

You have signed a statutory declaration that you and your spouse separated on a particular date.

You have remained living under the same roof, however.

You have both contributed to the income and living costs and the costs of raising your children.

Your funds have remained in joint accounts.

You have both been caring for your children.

Recently, you retained the services of a lawyer to facilitate the divorce.

You have signed an offer to purchase a residential property with settlement expected to occur shortly.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 251R(3)

Income Tax Assessment Act 1936 subsection 251R(6)

Income Tax Assessment Act 1997 section 995-1

Medicare Levy Act 1986 subsection 3(3)

Medicare Levy Act 1986 section 8B

Medicare Levy Act 1986 section 8C

Medicare Levy Act 1986 section 8D

Reasons for decision

Detailed reasoning

The Medicare Levy Surcharge (MLS) is imposed by sections 8B to 8G of the Medicare Levy Act 1986 (MLA).

Sections 8B, 8C and 8D of the MLA state that if a person earns more than their relevant income threshold and is not covered by an insurance policy that provides private patient hospital cover, they will be liable to pay the MLS.

Section 8D of the MLA provides for the imposition of the Medicare levy surcharge in relation to a person who is married during whole or part of the financial year and states:

(1)This section applies to a person during a period if during the whole of the period:

(a) the person is a married person; and

(b) the person or at least one of the person's dependants (other than a dependant who is, or would, apart from subsection 251U(2) of the Assessment Act, be taken to be, a prescribed person) is

not covered by an insurance policy that provides patient hospital cover; and

(c)the person is not, or is taken under section 251VA of the Assessment Act not to be, a prescribed person

(2) For the purposes of paragraph (1)(b), a person to whom section 251VA of the Assessment Act applies is taken to be covered by during the whole of the period by an insurance policy that provides patient hospital cover.

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

Who is a spouse?

In accordance with subsection 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), a spouse includes the following:

(a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a State law or Territory law prescribed for the purposes of section 2E of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

(b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

When is a person married?

Paragraph 3(3)(a) of the MLA 1986 states that subject to subsection 3(3A) of the MLA 1986, a person shall be deemed not to be married to another person if they are living separately and apart.

The term 'living separately and apart' is not defined in the legislation. It therefore takes its ordinary meaning.

Where a taxpayer's circumstances change during the income year (for example, the taxpayer marries or takes out private hospital insurance cover), the surcharge liability is determined separately in respect of each portion of the year.

Taxation Ruling TR 93/35 Income tax: Medicare levy payable by persons entitled to full free medical treatment: dependants for Medicare levy purposes states that a husband and wife living together, who are each in receipt of income are for Medicare levy purposes, each treated as a person who has a dependant and are dependants of each other. Subsection 251R(6) of the MLA provides that persons living together will be taken to have contributed to the maintenance of each other unless the contrary is proven.

It is open to persons living together to prove that they have not contributed to the maintenance of each other by providing evidence establishing that each was self-supporting. Normal domestic sharing arrangements, e.g, a common account to which each person contributes, and which is used to meet joint expenses, is not ordinarily sufficient to establish that one person has not contributed to the maintenance of the other.

In the case of Thompson v Federal Commissioner of Taxation (1999) 41 ATR 1245, the Administrative Appeals Tribunal found that where spouses pooled funds to be used for the provision of necessities and conveniences of life, the onus is on the taxpayers to show that none of the funds pooled are advanced towards the maintenance of the other spouse. In that case, the taxpayer failed to demonstrate this.

Application to your circumstances

You have advised that you are separated but continue to remain living under the same roof. We therefore consider that you were married during the income year ending 30 June 20XX. To be considered not married according to paragraph 3(3)(a) of the MLA 1986, you must be living separately and apart from your spouse.

The phrase living separately and apart from your spouse is not defined in the legislation. It therefore takes its ordinary meaning. Where the parties continue to reside at the same geographical location, it is difficult to argue there is no degree of dependence on the other party.

You have stated that you continue to use joint accounts and reside at the same location. You also continue to jointly care for your children. We recognise that you have advised these arrangements are for the benefit of your children.

However, based on the information provided, we consider that you continue to maintain your spouse as a dependant. In addition, you were not living separately and apart for the whole of the income yar ending 30 June 20XX. Therefore, for the purposes of the Medicare Levy Surcharge, you were married for the whole of the income year ending 30 June 20XX.