Issue
Is the taxpayer's pre-July 1983 component of their 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?
Decision
No, the taxpayer's pre-July 1983 component of their ETP is not excluded from taxable income under subsection 251S(1A) of the ITAA 1936 in calculating taxable income to which the Medicare levy will apply.
Facts
The taxpayer received an ETP which comprised a pre-July 1983 component.
Five per cent of this component is included in the taxpayer's assessable income and taxed at the marginal rate of tax.
Reasons for Decision
Section 251S of the ITAA 1936 provides that a Medicare levy is levied and shall be paid by an individual who is a resident of Australia at any time during the income year based on his or her taxable income for the year.
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%.
Five per cent of the pre-July 1983 component of an ETP is included in the taxpayer's assessable income, is taxed at marginal rates and is not eligible for the section 159SA rebate. As the exclusion in subsection 251S(1A) does not apply, the amount is not excluded from the taxable income to which the Medicare levy applies.