Issue
Does the Commissioner have the discretion to exempt a taxpayer from the Medicare Levy Surcharge (surcharge), imposed under section 8B of the Medicare Levy Act 1986 (MLA 1986), if the taxpayer is overseas for part of the year and substitutes their normal health insurance cover with a policy obtained from a general insurance company providing unlimited hospital and medical cover?
Decision
No. The Commissioner does not have the discretion to exempt a taxpayer from the surcharge imposed under section 8B of the MLA 1986 if the taxpayer is overseas for part of the year and, having changed their health cover, does not have the appropriate private patient hospital cover during that period.
Facts
The taxpayer, who was single, suspended their private patient hospital cover while on 12 months leave overseas.
While overseas, the taxpayer entered into an insurance policy with a general insurance company, obtaining unlimited hospital and medical cover.
The general insurance company was not a 'registered organisation' under the National Health Act 1953 (the Health Act).
The taxpayer was not a 'prescribed person' as defined in section 251U of the Income Tax Assessment Act 1936 (ITAA 1936).
The taxpayer was overseas during parts of two consecutive years of income.
The taxpayer's taxable income for surcharge purposes exceeded the threshold in each of the years of income.
Reasons for Decision
An unmarried person with no dependants is liable to pay a surcharge of 1 per cent on their taxable income under section 8B of the MLA 1986 if: they are not a prescribed person as defined in section 251U of the ITAA 1936, they do not have an insurance policy providing 'private patient hospital cover' and their income for surcharge purposes exceeds the threshold.
A person will have 'private patient hospital cover' if their insurance policy is an 'applicable benefits arrangement' within the meaning of section 5A of the Health Act. Only 'registered organisations', as defined in the Health Act, can provide an 'applicable benefits arrangement'. The taxpayer suspended their private patient hospital cover while overseas and entered into an insurance policy with a general insurance company that is not a 'registered organisation' under the Health Act. Therefore, the taxpayer did not have the appropriate 'private patient hospital cover' as required under section 8B of the MLA 1986 while overseas.
Income for surcharge purposes, as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), means the sum of the taxpayer's: taxable income, reportable fringe benefits, reportable superannuation contributions and the total net investment loss for the income year. As the taxpayer's taxable income for surcharge purposes exceeded the threshold in each of the years of income, the surcharge will apply under paragraph 8B(2)(b) of the MLA 1986 for those days in each of the years of income that the taxpayer did not have the appropriate 'private patient hospital cover'. There is no provision in the MLA 1986 that provides the Commissioner with the discretion to exempt a taxpayer from the surcharge where the taxpayer has taken equivalent health insurance with a non-registered organisation.
Amendment History
Date of Amendment Part Comment 2 September 2014 Facts Minor amendments to clarity content Minor amendments to align with the ATO style and citation guides Remove references to the old threshold and refer to threshold generally Reason for Decision Remove reportable fringe benefits as it is no longer referred to in the legislation cited Remove references to the old threshold and refer to threshold generally Minor amendments to clarity content Correct reference to the MLA 1986 instead of the ITAA 1936 Add paragraph to define income for surcharge purposes for clarification and as referred to in the legislation Legislative references Addition of Section 995-1 of the Income Tax Assessment Act 1997
Date of Amendment | Part | Comment
2 September 2014 | Facts | Minor amendments to clarity content
Minor amendments to align with the ATO style and citation guides
Remove references to the old threshold and refer to threshold generally
Reason for Decision | Remove reportable fringe benefits as it is no longer referred to in the legislation cited
Remove references to the old threshold and refer to threshold generally
Minor amendments to clarity content
Correct reference to the MLA 1986 instead of the ITAA 1936
Add paragraph to define income for surcharge purposes for clarification and as referred to in the legislation
Legislative references | Addition of Section 995-1 of the Income Tax Assessment Act 1997