Edited version of private advice

Authorisation Number: 1052126219167

Date of advice: 6 June 2023

Ruling

Subject: Medicare levy surcharge

Question 1

Does the Insurance plan exempt you from paying the Medicare levy surcharge?

Answer

No.

Question 2

Is the income you earned as a consultant to an International Organisation in Australia exempt from tax in Australia?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are a citizen of Australia.

You had an insurance plan.

The plan covered you for several months.

The plan covers medical treatment resulting from sickness, maternity, or accident, as well as medical evacuation and/or repatriation and the coverage includes Australia.

You had a contract with an International Organisation (Employer Z) as a consultant.

You carried out your work with Employer Z in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-15

Income Tax Assessment Act 1997 section 6-20

International Organisations (Privileges and Immunities) Act 1963

Reasons for decision

Medicare Levy Surcharge

Under section 8D of the Medicare Levy Act 1986 (MLA 1986), a married taxpayer will be subject to a MLS of 1% where, for the whole of a year of income:

•         the taxpayer or at least one of their dependants (unless the dependant is a prescribed person) are not covered by an insurance policy that provides appropriate private patient hospital cover; and

•         the taxpayer is not a prescribed person; and

•         the combined taxable income and reportable fringe benefits (if any) of the taxpayer and their spouse exceed the relevant family surcharge threshold; and

•         the taxpayer's taxable income and reportable fringe benefits (if any) exceeds the relevant Medicare levy single low income exemption threshold.

A person will have appropriate private patient hospital cover if their insurance policy is an applicable benefits arrangement within the meaning of section 5A of the National Health Act 1953 (NHA 1953). Only registered organisations, as defined in the NHA 1953, can provide an applicable benefit arrangement.

You are part of the insurance plan.

The insurance plan is not a registered organisation as defined in the NHA 1953. Therefore, you do not have the appropriate private patient hospital cover as required under section 8D of the MLA 1986.

You are therefore required to pay the MLS in the relevant income year.

International Organisation

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident will include ordinary income derived from all sources, whether in or out of Australia, during the income year.

Income from your services is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income, then it is not assessable income.

Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.

The International Organisations (Privileges and Immunities) Act 1963 (IO(P+I)A) is a Commonwealth law under which an international organisation, and persons engaged by it, may be accorded certain privileges and immunities including an exemption from tax.

The Commissioner's guidelines as to the assessability of remuneration derived from International Organisations are dealt with in Taxation Ruling TR 2019/D1.

Paragraph 31 of TR 2019/D1 provides that persons who serve on a committee, participate in the work of, or perform a mission on behalf of an international organisation may be exempted from taxation on salaries and emoluments received from the organisation.

However, any exemption may be limited or subject to conditions, particularly where the person is rendering the services in Australia and is a resident of Australia for taxation purposes (paragraph 33 of TR 2019/D1).

The regulations of Employer Z provide that a person who is performing, whether alone or jointly with other persons, a mission on behalf of the organisation has the privileges and immunities specified in paragraphs 2, 2A and 5 of Part I of the Fifth Schedule to the IOPIA.

However, the regulations also provide that salary and emoluments received from Employer Z by a person on whom privileges and immunities are conferred, being a resident of Australia, are not exempt from taxation, to the extent to which they are for services rendered in Australia unless the person is not a citizen of Australia and came to Australia solely for the purpose of serving on a committee, or participating in the work, of the organisation or performing a mission on behalf of the organisation.

The term 'emoluments' include payments made to an expert in respect of their services which are remuneration, or at least an 'advantage' obtained as a result of giving those services.

In your case, you are a resident and citizen of Australia, and you derived income from consultancy services performed for Employer Z for work carried out in Australia.

Consequently, the payments you received for work performed for Employer Z in Australia are not exempt from tax under the regulations of the organisation as the payments are an emolument received while performing services for Employer Z in Australia.

You are therefore required to pay tax in Australia on your income derived from Employer Z.