Edited version of private advice

Authorisation Number: 1052195794706

Date of advice: 30 November 2023

Ruling

Subject: Medicare levy and medicare levy surcharge

Question

Can you receive an exemption from paying the Medicare levy and Medicare levy surcharge?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born oversea in XXXX.

You are an Australian citizen since XXXX.

You have a spouse.

You have no dependants.

You spent time travelling around the world for business and personal purpose.

During this period, you maintained your Australian tax residence status and citizenship.

Your intention was to return to Australia.

You returned to Australia on XX/XX/20XX.

You have an Australian health insurance XXXX cover.

Your policy had the appropriate level of private patient hospital cover for XXX days.

You have small negligible bank accounts in the Country XX and your primary bank is in Australia.

You only have Australian real estate that is leased.

Relevant legislative provisions

Medicare Levy Act 1986 section 8(1).

Income Tax Assessment Act 1936 section 251S

A New Tax System (Medicare Levy Surcharge- Fringe Benefits) Act 1999 section 8

Reasons for decision

Medicare Levy

The Medicare levy is imposed on the taxable incomes of persons residing in Australia and on Australian residents who are entitled to receive Medicare benefits. The Medicare levy is 2% of your taxable income.

Taxation ruling IT 2615: Income tax: Medicare levy - test for Australian residency - payable by Australians living overseas and by visitors to Australia clarifies the appropriate tests for residency for Medicare levy purposes. The Medicare levy is imposed on the taxable incomes of persons residing in Australia and Australian residents who are entitled to receive Medicare benefits. The test for residency for Medicare levy purposes differs from the residency test for Medicare benefit entitlement. Paragraph 12 outlines the test of residency as a person who resides in Australia and who a taxpayer who satisfies other pre-requisites like citizenship.

As a returning citizen, as outlined in paragraph 20, Australians temporarily living overseas are considered residents. As a resident, you are entitled to Medicare benefits and are liable for the Medicare levy.

You may claim an exemption from Medicare levy if:

•         You were a foreign resident.

•         You have a Medicare Entitlement statement showing that you were not entitled to Medicare benefits because you were a temporary resident for Medicare purposes and all your dependents (including your spouse) were also in a Medicare levy exemption category for that period.

If you are above an income threshold, you need to pay both the Medicare levy and the Medicare levy surcharge.

In your case, you are a citizen, and you are entitled to the Medicare benefits. If you are above an income threshold, you need to pay both the Medicare levy and the Medicare levy surcharge.

Medicare levy surcharge (MLS)

The Medicare levy surcharge is imposed if both:

•         You, your spouse, and your dependent children do not have an appropriate level of private patient hospital cover, and

•         You earn above a certain income.

The MLS is imposed by the Medicare Levy Act 1986 (MLA).

Section 8D of the MLA states 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.

Subsection 3(5) of the MLA states the following:

For the purposes of this Act, a person is covered by an insurance policy that provides private patient hospital cover if the policy is a complying health insurance policy (within the meaning of the Private Health Insurance Act 2007) that covers hospital treatment.

Under section 8D of the > Medicare Levy Act 1986 (MLA 1986), a married taxpayer will be subject to the MLS 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.

Your health cover policy is an appropriate private patient hospital cover for 273 days as required under section 8D of the MLA 1986.

In the case of McCarthy v F C of T 2002 ATC 2004, the applicant applied for an exemption to the Medicare levy. It was determined that the Commissioner had no discretion to not impose the Medicare levy (or the MLS) as there was no provision in the legislation to do so. Once a taxpayer's income has reached the MLS threshold the surcharge must be imposed in accordance with the legislation.

Your private health insurance policy meets the requirements under the Private Health Insurance Act 2007, but your spouse does not have the appropriate health cover. Consequently, you will not be exempt from paying the MLS. You are therefore required to pay the MLS in the relevant income year.

We have considered your circumstances, and conclude that:

•         You were not eligible for the Medicare Levy exemption.

•         You were not eligible for the Medicare Levy Surcharge exemption.

More information

For more information about residency, see Taxation Ruling TR IT 2615 Income tax: Medicare levy - test for Australian residency - payable by Australians living overseas and by visitors to Australia.