Edited version of private advice

Authorisation Number: 1052315728626

Date of advice: 11 October 2024

Ruling

Subject: Medicare levy surcharge

Question

Will the Commissioner grant a Medicare Levy Surcharge (MLS) exemption based on the hospital cover under XXXX Overseas Visitor Health Cover (OHVC)?

Answer

No.

This ruling applies for the following period:

Year ended XX XXXX 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

You are a recent resident of Country A.

You are eligible for Medicare under the reciprocal health agreement between Australia and Country A.

Your taxable income for the 20XX income year is $XXX,XXX, which exceeds the family threshold and making you liable to paying the MLS.

You purchased Overseas Visitor health Cover (OVHC), believing this complied with the Australian Visa regulations.

OHVC provides public hospital cover only and this does not meet the requirements for MLS exemption.

You, as a new resident, were not fully informed about the MLS exemption criteria.

You have secured appropriate private patient hospital coverage through Company A, which is effective from XX XXXX 20XX, this new cover aligns with the ATO's MLS exemption requirements.

You commenced you OHVC policy XX XXXX 20XX.

•         Membership number XXXXXXX

•         Cover scale - Family.

•         Level of Cover OHVC - Top working $XXX excess

•         This policy was cancelled from XX XXXX 20XX.

•         This policy does not meet the exemption requirements of MLS.

You commenced Reciprocal Health Cover - Basic with Company A XX XXXX 20XX

•         Membership number - XXXXXXX

•         Membership type - Family

•         Policy states this cover provides an exemption from the MLS.

Relevant legislative provisions

Medicare Levy Act 1986

Medicare Levy Act 1986 subsection 8B

Medicare Levy Act 1986 Subsection 3(5)

Income Tax Assessment Act 1936 section 251s

Reasons for decision

Medicare Levy Surcharge

The Medicare Levy Surcharge (MLS) is imposed by the MLA 1986. The MLS is a surcharge that is paid in addition to the Medicare Levy. It is 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, which includes both your taxable and reportable fringe benefits amounts for the year.

A taxpayer's liability to pay the MLS during an income year is affected by whether the taxpayer:

•         Is single or married.

•         Has dependants

•         Is covered by private patient hospital insurance (and whether dependants are also covered by such insurance).

•         Is a "prescribed person".

•         Whether a taxpayer's income and reportable fringe benefits total exceeds the threshold amount (if the taxpayer is married this would be the combined totals of both partners).

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

Subsection 8D(1) of MLA 1986 sets out the procedure for taxpayers who are married during the whole or part of the financial year:

This section applies to a person during a period if during the whole period:

•         The person is a married person and

•         The person or at least once of the person's dependants is not covered by an insurance policy that provides private patient hospital cover.

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

Subsection 8(D)3 advises us the amount of the levy that would have been payable by a person under this Act for the year of income is to be increased by the amount of 1% of the person taxable income if:

•         This section applies to the person for the whole year of the year of income and

•         The sum of the person's income for surcharge purposed and the person's spouse's income for surcharge purposes exceeds the person family tier 1 threshold and

•         The person's income for surcharge purposes exceeds $26000.

Subsection 8(D)4 advises the about of the levy that would have been payable by a person under this Act for the year of income, being a person to who, this section applies for only some of the days in the year of income, is to be increased by the amount worked out using the formula:

(1% of the person's taxable income) × Number of those days ÷ Number of days in the year of income

If:

•         Both of the following conditions are met if the person is married for the whole of the year of income.

o   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.

o   The persons income for surcharge purposes exceeds $26,000.

•         The person's income for surcharge purposes exceeds the person's family tier 1 threshold if the person is married for only some of the year of income.

Increase the amount of each percentage by 0.25 of a percentage point if the person is a tier 2 earner for the year of income.

Increase the amount of each percentage by 0.5 of a percentage point if the person is a tier 3 earner for the year of income.

In the year ended XX XXXX 20XX, you were married, your taxable income was $XXX,XXX, which exceeds the minimum family threshold amount of $186,000 or less. This makes you a Tier X income earner. If you are not covered by an insurance policy that provides an appropriate level of private patient hospital cover then you are required to pay the MLS. Please refer to the table below:

Table 1: Medicare levy surcharge

Reciprocal Healthcare Agreements

A Reciprocal Healthcare Agreement means that you are eligible for care under Medicare and that you would not be exempt under exemption category 3: not entitled to Medicare benefits.

Australia currently has a Reciprocal Healthcare Agreement with 11 countries, the XXX being one of these countries. This agreement covers the cost of medically necessary care when visitors from these countries visit Australia. If you are visiting from the XXX, to be eligible you must have been living in the XXX before arriving in Australia.

The Reciprocal Healthcare Agreement covers:

•         Medically necessary care out of hospital

•         Medically necessary care as a public patient in a public hospital including inpatient and outpatient services.

•         Some PBS prescription medicines at the general rate.

It does not, however, exempt you from the MLS.

Insurance policy with private patient hospital cover

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

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

•         Any excess payable in respect of benefits under the policy is no more that the applicable amount set out in subsection 45-1 of that Act in any 12-month period.

Complying health insurance product and policy

A complying health insurance policy is defined in subsection 63-10 of the PHIA 2007, as an insurance policy that meets number of conditions including providing private patient hospital cover that provides benefits in relation to some, or all, of the fees and charges for hospital treatment. If the cover is for extras or general services only, for example, ambulance cover or medicines, it 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.

Under the subsection 63-5(1) of the PHIA 2007 the meaning of complying health insurance product is a "product made up of" complying health insurance policies.

Under the subsection 63-5(2) of the PHIA 2007, a product is all the insurance policies issued by a private health insurer:

•         That covers the same treatments.

•         Provides benefits that are worked out the same way.

•         Whose other terms and conditions are the same as each other.

Normally health insurance funds will indicate which of their policies meet these conditions. Your private health insurance does not meet the requirements under the PHIA 2007.

Application to your circumstances

In applying this to your situation, you purchased Overseas Visitor Health Cover (OVHC) on the XX XXXX 20XX, as your private health insurance, believing this complied with the Australian Visa regulations. However, whilst this cover may provide you with hospital cover it does not meet the requirements for a MLS exemption, you since cancelled this policy on XX XXXX 20XX.

Further, on the XX XXXX 20XX you commenced Reciprocal Health Cover - Basic with Company A with the membership type of Family. This policy will provide exemption from the MLS.

We have considered your circumstances and conclude that you are not eligible for the Medicare Levy Surcharge exemption for the year ended 20XX.

Your private health insurance policy does not meet the requirements under the PHIA 2007. Accordingly, your policy from XX XXXX 20XX - XX XXXX 20XX will not exempt you from paying the MLS. The Commissioner is unable to grant discretion if you do not hold the correct private health insurance to waive the MLS.

You will also be liable for MLS from XX XXXX 20XX - XX XXXX 20XX, as your new private health insurance policy commenced on the XX XXXX 20XX.