Edited version of private advice

Authorisation Number: 1052094130039

Date of advice: 7 March 2023

Ruling

Subject: Medicare levy surcharge

Question 1

Are you considered to be a person covered by an insurance policy that provides private patient hospital cover in accordance with paragraph 8D(1)(b) of the Medicare Levy Act 1986 where you have an international health insurance policy that provides private patient hospital cover in Australia?

Answer

No

This ruling applies for the following periods:

Income year ended 30 June 20YY

Income year ended 30 June 20YY

Income year ended 30 June 20YY

Income year ended 30 June 20YY

Income year ended 30 June 20YY

The scheme commenced on:

In the income year ended 30 June 20YY

Relevant facts and circumstances

1.    You are currently an Australian resident for tax purposes and have been since MM YYYY.

2.    Prior to MM YYYY, you were not an Australian resident for tax purposes and were living and overseas.

3.    You returned permanently to Australia in MM YYYY after retiring from your employment.

4.    You are married to your spouse who you lived with throughout the 20YY income year and intend to continue to live with.

5.    You and your spouse are both entitled to Medicare benefits.

6.    You do not have any children under the age of 24 that live in the same house as you.

7.    Your spouse does not currently work.

8.    You and your spouse have comprehensive private health care insurance with an overseas based private health insurer which provides coverage for you in Australia.

9.    The health cover fees are paid directly from your monthly pension payment from your previous employer.

10.  You were a member of the same policy during your employment.

11.  You are not entitled to free medical treatment as a member of the Defence Force or as a relative of, or otherwise associated with, a member of the forces.

12.  You are not entitled to free medical treatment under the Veterans' Entitlements Act 1986 or the Seamen's War Pensions and Allowances Act 1940.

13.  You are not entitled to a Health Care Card, a Pensioner Health Benefits Card or a Health Benefits Card on a non-income - tested basis.

14.  In the year ended 30 June 20YY your income for surcharge purposes exceeded $X and, the sum of your income for surcharge purposes and your spouse's income for surcharge purposes exceeded your family tier 1 threshold.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 251R

Income Tax Assessment Act 1936 section 251V

Income Tax Assessment Act 1936 section 521U

Medicare Levy Act 1986 subsection 3(5)

Medicare Levy Act 1986 section 8D

Private Health Insurance Act 2007 section 63-10

Reasons for decision

Medicare levy

The Medicare levy is a levy imposed on the taxable income of people residing in Australia. The levy was introduced to complement the Australian Universal Medicare scheme and offset Commonwealth expenditure on Medicare benefits.

The imposition and collection of the Medicare levy is governed by the Income Tax Assessment Act 1936 (ITAA 1936) and the Medicare Levy Act 1986 (MLA 1986).

Taxation Ruling IT Income tax: medicare levy - test for Australian residency - payable by Australians living overseas and by visitors to Australia (IT 2615) discusses the operation of the Medicare levy and in particular the tests for residency for Medicare levy purposes and provides the following overview:

2. Broadly speaking, the Medicare levy is payable by persons who are residents of Australia and Australian residents are entitled to receive Medicare benefits in respect of professional services rendered in Australia....

...

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

5. Section 251S of the Act, broadly speaking, provides that a Medicare levy is levied and shall be paid by an individual who is a resident of Australia at any time during the income year based on his or her taxable income for the year. ...

Relief from the levy is given to certain low-income earners. Certain classes of people who qualify as 'prescribed persons' are exempt from the levy. IT 2615 summaries the six categories of people who may be a 'prescribed person' as follows:

•                     A person who is entitled to free medical treatment as a member of the Defence Force or as a relative of, or was otherwise associated with, a member of the forces (paragraph 251U(1)(a)).

•                     A person entitled under the Veterans' Entitlements Act 1986 or the Seamen's War Pensions and Allowances Act 1940 to free medical treatment (paragraph 251U(1)(b)).

•                     A person entitled to coverage for health care by reason of being entitled to a Health Care Card, a Pensioner Health Benefits Card or a Health Benefits Card on a non-income - tested basis (paragraph 251U(1)(c)).

•                     A person who is not an Australian resident (paragraph 251U(1)(d)).

•                     Certain foreign government representatives and their staff and families where they are not Australian citizens and are not ordinarily resident in Australia (paragraph 251U(1)(e)).

•                     A person in respect of whom the Minister for Community Services and Health has certified is ineligible for Medicare benefits (paragraph 251U(1)(f)). The circumstances in which such a certificate is issued, the Department of Community Services and Health has advised, are quite limited (refer to paragraph 19 below for details).

You are entitled to receive Medicare benefits and are required to pay the Medicare Levy.

Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is imposed by the MLA 1986. Broadly, the MLS is an additional levy surcharge that is paid in addition to the Medicare levy, payable by taxpayers who are not covered by an insurance policy with adequate private patient hospital cover and who earn more than the relevant income threshold (taxable income and reportable fringe benefits for the year).

Liability to pay the MLS

A taxpayer's liability to pay the MLS during a period is affected by whether the taxpayer:

•                     is married

•                     has dependants

•                     is covered by private patient hospital insurance (and whether their dependants are also covered by such insurance)

•                     is a 'prescribed person', and

•                     whether a taxpayer's income and reportable fringe benefits total (or the combined totals of both partners where the taxpayer is married) exceeds the threshold amount.

Where the factors above change for a taxpayer during the income year, the surcharge liability is determined separately in respect of each period during the income year.

Section 8D of the MLA 1986 sets out the operation of the MLS for taxpayers who are married during the whole or part of a financial year. Subsection 8D(1) of the MLA 1986 states that the MLS will apply under section 8D to a person during a period if during the whole of the period:

•                     the person is a married person; and

•                     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 private patient hospital cover; and

•                     the person is not, or is taken under section 251VA of the Assessment Act not to be, a 'prescribed person'

•                     the person's income for surcharge purposes exceeds a set threshold amount ($X in the 20YY income year) and, the sum of the person's income for surcharge purposes and the person's spouse's income for surcharge purposes exceeds the person's family tier 1 threshold (the percentage rate of the MLS can increase depending on their income for surcharge purposes).

In the 20YY income year you were married, your income combined with your spouse's income exceeded your family Tier 1 threshold, and your own income for surcharge purposes exceeded $X. If you (or at least one of your dependants) were not covered by an insurance policy that provides private patient hospital cover you are required to pay the MLS. If you are a 'prescribed person' within the meaning of the legislation you would not be required to pay the MLS regardless of your income for surcharge purposes and whether you have private patient hospital cover.

The meaning of the term 'dependant' in this context is defined in section 251R and 251V of the ITAA 1936 and will generally include the taxpayer's spouse if the couple reside together.

Insurance policy with private patient hospital cover

The meaning of an insurance policy that provides private patient hospital cover in the context of the legislation is provided by subsection 3(5) of the MLA 1986 which states:

For the purposes of this Act, a person is covered by an insurance policy that provides private patient hospital cover if:

(a)          the policy is a complying health insurance policy (within the meaning of the Private Health Insurance Act 2007) that covers hospital treatment (within the meaning of that Act); and

(b)          any excess payable in respect of benefits under the policy is no more than the applicable amount set out in section 45-1 of that Act in any 12 month period.

'Complying health insurance policy' is defined in section 63-10 of the Private Health Insurance Act 2007. Broadly, an insurance policy that provides private patient hospital cover if the policy provides benefits in relation to some, or all, of the fees and charges for hospital treatment. Cover for ancillary items or general services only, such as ambulance cover or medicines, is not health cover that provides private patient hospital cover. An up-to-date record of all registered private health insurers providing complying policies can be found on the PrivateHealth.gov.au website.

As your private health insurance provider is an overseas provider that is not on the list of registered health insurers, it cannot issue complying health insurance policies and cannot be considered to be cover that provides private patient hospital cover for the purposes of the MLA 1986.

Prescribed persons

According to section 8D of the MLA 1986, a married person who is a 'prescribed person' will not be liable for the MLS regardless of whether they or their dependants are covered by a complying health insurance policy with private patient hospital cover.

That is, where a taxpayer is normally exempt from the Medicare levy because they are a 'prescribed person', as discussed in relation to the applicability of the Medicare levy they will similarly be exempt from the MLS.

As discussed above, the main categories of prescribed persons as defined in section 521U of the ITAA 1936 are:

•                     members of the defence force

•                     veterans' (repatriation) beneficiary

•                     non-income tested health card holder

•                     non-resident of Australia

•                     foreign government representative

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

You do not fall within any of the 'prescribed person' categories.

Your circumstances

As your overseas health insurance provider is not on the list of registered health insurers, it cannot issue complying health insurance policies. As you are not a 'prescribed person' and you are not covered by a complying health insurance policy, when your income and the combined income of yourself and your spouse for surcharge purposes is greater than the relevant threshold amounts, you will be liable for the MLS. This occurred in the income year ending 20YY.

In accordance with the case of McCarthy v F C of T 2002 ATC 2004 once a person's liability to the surcharge has been established by satisfying the criteria discussed above, the Commissioner has no discretion to waive or modify the criteria and once a person's income has reached the MLS threshold the surcharge must be imposed in accordance with the legislation.

Section 8D of the MLA 1986 determines which Tier will apply for surcharge purposes, and this is dependent on the taxable income and other income for both you and your spouse.