Edited version of private advice

Authorisation Number: 2935018126354

Date of advice: 4 December 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 overseas and moved to XX in XXXX.

You are an XXXX citizen.

You have no dependants.

You have an XX citizen spouse.

You arrived in Australia on XX/XX/20XX.

You were on a temporary Visitor Visa.

You were on an Australian health insurance XXXX cover for non-residents.

The policy did not provide the appropriate level of private patient hospital cover.

XXXX is not on the list of countries that Australia has a reciprocal agreement.

You did not intend to return to XXXX.

You have no plans to leave Australia.

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

The only income is the receipt of investment income from XXXX.

You have no other assets.

You received permanent residency on XX/XX/20XX.

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. Medicare levy is 2% of your taxable income.

The clarification on the appropriate tests for residency for Medicare levy purpose is outlined in the Taxation ruling IT 2615: Income tax: Medicare levy - test for Australian residency - payable by Australians living overseas and by visitors to Australia. The Medicare levy is imposed on the taxable incomes of persons residing in Australia and Australian residents who are entitled to receive Medicare benefits.

You may claim an exemption from Medicare levy for part of the year if:

•         You were a foreign resident for part of the year; and

•         All your dependents (including your spouse) were in a Medicare levy exemption category for that period.

You may also claim an exemption if:

•         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.

While you were a foreign resident for part of the year, your spouse was not in a Medicare levy exemption category for that period.

In addition, you do not have a Medicare Entitlement statement showing that you were not entitled to 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)

Medicare 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 a 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.

You held a temporary overseas visitor visa in Australia from 1 December 2021 to 30 June 2022. During this period, you held a visitor health policy. This policy did not exempt you from the Medicare Levy surcharge.

In the case of McCarthy v F C of T 2002 ATC 2004, the applicant applied for an exemption from the Medicare levy being imposed. 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 does not meet the requirements under the Private Health Insurance Act 2007. Consequently, your policy will not exempt you from paying the MLS. You are therefore required to pay the MLS in the relevant income year.

Some countries have reciprocal agreements that may provide an exemption of the Medicare Levy surcharge.

In your case, XXXX is not on the list of countries that Australia has a reciprocal agreement to provide the exemption for the Medicare levy surcharge.

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.