Medicare levy - family income - post June 83 component of ETP received by spouse

Is the taxed element of a post June 83 component of an eligible termination payment (ETP) received by the taxpayer's spouse part of the taxpayer's family income for the purposes of calculating the Medicare levy imposed under section 251S of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. The taxed element of a post June 83 component of an ETP received by the taxpayer's spouse is part of the taxpayer's family income for the purposes of calculating the Medicare levy imposed under section 251S of the ITAA 1936.

The taxpayer is married and has one dependant child.

The Medicare levy threshold for a married taxpayer with one dependant child (below which no levy was payable) for the income year was $25 439.

The spouse's taxable income included the taxed element of a post June 1983 component of an ETP. As the spouse was over 55 years of age the tax payable on that component of the ETP was nil.

The combined taxable income of the taxpayer and their spouse exceeded $25 439.

If the spouse's ETP had not been taken into account in determining the taxable income of the spouse the combined taxable income of the taxpayer and their spouse would be less than $25 439.

Subsection 251S(1) of the ITAA 1936 levies the Medicare levy upon the taxable income of a resident taxpayer. The rate of the Medicare levy is determined under the Medicare Levy Act 1986 (MLA 1986).

Subsection 8(1) of the MLA 1986 provides that where a taxpayer is married on the last day of the income year and their family income does not exceed the family income threshold, then no levy is payable by the taxpayer.

Subsection 8(5) of the MLA 1986 provides that family income of a married taxpayer is the sum of the taxable income of the taxpayer and the taxable income of their spouse.

Taxable income is calculated under section 4-15 of the Income Tax Assessment Act 1997 as being assessable income less deductions. A taxpayer's assessable income includes an ETP (sections 27A to 27H of the ITAA 1936).

However subsection 251S(1A) of the ITAA 1936 provides that if a taxpayer is entitled to a tax offset under section 159SA of the ITAA 1936 in their assessment which effectively reduces the primary rate of tax to 0% with regard to a rebatable amount, then the taxable income of that taxpayer is reduced by that rebatable amount.

The post June 1983 taxed element of an ETP received by a taxpayer at the age of 55 and over is a rebatable amount to be taxed at 0%. Therefore this rebatable amount is excluded from the taxpayer's taxable income for the purposes of the Medicare levy (ATOID 2001/486).

However subsection 251S(1A) of the ITAA 1936 only deals with the situation where a taxpayer who is being assessed for the Medicare levy is also the person who has received the rebatable amount. Subsection 251S(1A) of the ITAA 1936 does not allow for a reduction in the spouse's taxable income for the purposes of calculating the taxpayer's family income.

As it is the taxpayer's spouse who is entitled to the tax offset under section 159SA of the ITAA 1936 this rebatable amount does not reduce the taxpayer's family income for the purposes of calculating the family income threshold. Therefore the taxpayer's family income includes their spouse's taxed element of a post June 1983 ETP for the purposes of calculating the Medicare levy imposed under section 251S of the ITAA 1936.