Medicare Levy Surcharge: foster child not covered by an insurance policy that provides private patient hospital cover

Is the taxpayer liable for the Medicare levy surcharge under section 8D of the Medicare Levy Act 1986 (MLA) if the taxpayer's foster child is not covered by an insurance policy that provides private patient hospital cover?

No. The taxpayer is not liable for the Medicare levy surcharge under section 8D of the MLA if the taxpayer's foster child is not covered by an insurance policy that provides private patient hospital cover, because the foster child is not a dependant of the taxpayer.

The taxpayer and their spouse are covered by an insurance policy that provides private patient hospital cover.

The taxpayer has a foster child who is not covered by the insurance policy.

The combined taxable income of the taxpayer and their spouse exceeds the family surcharge threshold. They do not receive any reportable fringe benefits.

The taxpayer's taxable income exceeds the individual low income Medicare levy threshold.

Neither the taxpayer nor the taxpayer's foster child are prescribed persons as defined under subsection 251U(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

The foster child is 12 years of age.

Paragraph 251S(1)(a) of the ITAA 1936 provides that the Medicare levy is levied at the rate applicable under the MLA on the taxable income of a person who at any time during the year of income was a resident.

Section 8D of the MLA provides that the amount of the Medicare levy payable by a taxpayer is increased by 1% of their taxable income where, for the whole of the period: • they are a married person • the family income (total taxable income and reportable fringe benefits of the taxpayer and their spouse) exceeds the family surcharge threshold • they, or at least one of their dependants who is not a prescribed person, are not covered by an insurance policy that provides private patient hospital cover • they are not, or are taken under section 251VA of the ITAA 1936 not to be, a prescribed person, and • the taxpayer's taxable income and reportable fringe benefits exceeds the Medicare levy individual low income threshold.

This increase in the amount of Medicare levy payable is commonly known as the Medicare levy surcharge.

A dependant for the purposes of the MLA is determined by sections 251R and 251V of the ITAA 1936 (see Note 2 subsection 8D(1) of the MLA).

The interaction of sections 251R and 251V of the ITAA 1936 relevantly provides that a child of the taxpayer less than 21 years of age, which the taxpayer contributes to the maintenance of, is a dependant of the taxpayer for the purposes of the MLA. Under subsection 251R(6) of the ITAA 1936, a person who resides with another person is presumed to contribute to the maintenance of that other person.

Subsection 6(1) of the ITAA 1936 defines a child by reference to subsection 995-1(1) of the Income Tax Assessment Act 1997 , in relation to a person, as including '... an adopted child, a step-child or an ex-nuptial child of that person; a child of the individual's *spouse; someone who is a child of the individual within the meaning of the Family Law Act 1975 '.

The meaning of the term child in its ordinary sense at common law is discussed in Words And Phrases - legally defined , (1988), Volume 1, 3rd Edition, Saunders JB, Butterworths, London. At page 254 it states that: The general rule has been that in the absence of a contrary intention, express or implied, and unless it is more consonant with the object of the statute to include illegitimate children, all statutory provisions in respect of children refer exclusively to legitimate children. However, this rule has been altered extensively by statute ....

The foster child in the present circumstances is not a child of the taxpayer as the word is used in its ordinary sense in that they are not the legitimate child of the taxpayer. Nor is the foster child a child of the taxpayer under the extended definition in subsection 6(1) of the ITAA 1936. Accordingly, the foster child is not a dependant of the taxpayer for the purposes of the MLA.

The taxpayer and their spouse are covered by an insurance policy that provides private patient hospital cover. As the taxpayer's foster child is not a dependant for the purposes of the MLA, the taxpayer does not have a dependant that is not covered by the relevant insurance policy. Accordingly, the taxpayer is not liable for the Medicare levy surcharge under section 8D of the MLA.