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Is a taxpayer, who was a sole parent for the first 11 months of the year of income but was living with their spouse on the last day of the year of income, entitled to a reduction in the Medicare levy imposed under section 251S of the Income Tax Assessment Act 1936 (ITAA 1936) based on their family income excluding their spouse's income?

No. A taxpayer, who was a sole parent for the first 11 months of the year of income but living with their spouse on the last day of the year of income, is not entitled to a reduction in the Medicare levy imposed under section 251S of the ITAA 1936 as their family income must include their spouse's income.

The taxpayer, a resident, was separated from their defacto spouse for the period 1 July to 31 May.

The taxpayer has two dependant children.

The taxpayer began living with their spouse from 1 June until 30 June in the year of income.

The taxpayer's income when combined with their spouse's income for the current year exceeded the relevant phase-in limit for the family income threshold.

Section 251S of the ITAA 1936 states that an individual who is a resident of Australia at any time during the income year is liable to pay a Medicare levy on their taxable income for the year at the rate set in the Medicare Levy Act 1986 (MLA 1986).

Section 7 of the MLA 1986 provides relief from the levy for certain low income earners. If a taxpayer's taxable income is below the threshold amount set in section 3 of the MLA 1986 no levy is payable or if their taxable income is within the phase-in limit set in section 3 of the MLA 1986 a reduced levy is payable.

Section 8 of the MLA 1986 provides a higher threshold amount and phase-in limit if the taxpayer is married on the last day of the income year or is, or would have been, entitled to a child/housekeeper, housekeeper or sole parent rebate. The amount of levy payable depends on the amount by which the taxpayer's 'family income' exceeds the 'family income threshold'.

'Family income' is defined in subsection 8(5) of the MLA 1986 to mean: (a) if the person was a married person on the last day of the year of income - the sum of the taxable income of the person and the taxable income of the spouse of the person; and (b) in any other case - the taxable income of the person.

The meaning of married for the purposes of the Medicare levy includes defacto relationships, subsection 251R(2) of the ITAA 1936 states: Where, during any period, a man and a woman have lived together as husband and wife on a bona fide domestic basis although they were not legally married to each other, this Part and any Act imposing levy have effect in relation to that period as if those persons were married to each other and neither of them was married to any other person.

As the taxpayer was living with their spouse on the last day of the year of income they were married on the last day of the year of income for Medicare levy purposes.

As the taxpayer was a married person on the last day of the year of income paragraph 8(5)(a) of the MLA 1986 applies to determine their family income for the purposes of the Medicare levy reduction. Therefore, the taxable income of the taxpayer's spouse will be taken into account when calculating the taxpayer's family income.

Accordingly, the taxpayer will not be entitled to a reduction in the Medicare levy imposed under section 251S of the ITAA 1936 based on their family income excluding their spouse's income.

As a consequence, the taxpayer will not be entitled to any reduction in the Medicare levy imposed under section 251S of the ITAA 1936 as the combined income of the taxpayer and their spouse exceeds the phase - in limit for the family income threshold.