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Is the taxpayer's post-June 1983 component of the taxpayer's Eligible Termination Payment (ETP) excluded under subsection 251S(1A) of the Income Tax Assessment Act 1936 (ITAA 1936) when calculating taxable income to which the Medicare levy will apply?

Yes, the taxpayer's post-June 1983 component of the taxpayer's ETP is excluded under subsection 251S(1A) of the ITAA 1936 when calculating taxable income to which the Medicare levy will apply.

The taxpayer received an ETP consisting of a post-June 83 taxed element which was included in the taxpayer's assessable income for the income year.

The taxpayer was over 55 years of age at the time of the payment and the amount received falls below the low rate threshold limit for the income year.

Section 251S of the ITAA 1936 provides that the Medicare levy is based on the taxpayer's taxable income for the year.

There is one exclusion from taxable income, as otherwise calculated, in calculating taxable income to which the Medicare levy will apply. Subsection 251S(1A) of the ITAA 1936 provides that the Medicare levy is not payable on that portion of any ETP included in assessable income in respect of which a rebate under section 159SA of the ITAA 1936 will effectively reduce the primary rate of tax to 0%.

Section 159SA of the ITAA 1936 allows a rebate to ensure that any post-June 1983 taxed element of an ETP received by a taxpayer at the age of 55 and over is taxed at 0% up to a certain threshold applicable for a particular income year.

The taxpayer is over 55 years of age and the amount received by the taxpayer is below the relevant low rate threshold limit for the income year. The post-June 1983 taxed element component is subject to the low rate threshold provisions and is therefore effectively taxed at a 0% rate.

Accordingly, as the rebate under section 159SA of the ITAA 1936 effectively reduces the primary tax rate to 0%, the amount is excluded from the calculation of taxable income for the taxpayer for Medicare levy purposes.