Income tax: Medicare levy - Defence Force personnel on overseas postings

This Ruling deals with the liability to Medicare levy of Defence Force personnel on overseas postings.

This Ruling should be read in conjunction with Taxation Ruling TR 93/35.

In accordance with paragraph 251T(a) and paragraph 251U(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936), [1] a Defence Force member on an overseas posting is fully exempt from the Medicare levy where: * the member is entitled to receive free medical treatment; and * the member's dependants are entitled to receive free medical treatment.

Where a Defence Force member on an overseas posting is entitled to free medical treatment but the member's dependants are not entitled to receive free medical treatment, the member is generally liable to half the Medicare levy.

From the year of income commencing 1 July 1989, relief from liability to half the Medicare levy is available to a Defence Force member where: * the dependant is required to pay the levy or; * the spouse is liable to pay the levy and contributes to the maintenance of a dependant.

Where both the taxpayer and his/her spouse are Defence Force members, a child of theirs may be treated as a dependant of only one spouse. Only that spouse will be liable to pay one half of the levy and the other spouse will be exempt. In these cases a 'family agreement' must be entered into as explained in Taxation Ruling TR 93/35.

A Defence Force member on an overseas posting, other than to Butterworth Airbase in Malaysia (where special arrangements apply), is entitled to a part reimbursement of any medical costs on 'prescribed services' in respect of an 'eligible person'. It is considered that these reimbursement arrangements do not constitute free medical treatment and in these circumstances the member is generally liable to half the Medicare levy.

Because of special arrangements that apply, dependants of a Defence Force member who accompany that member to Butterworth Airbase in Malaysia, are entitled to free medical treatment. The member is therefore exempt from the levy in respect of these dependants.

However, if, for example, a dependant of a Defence Force member does not accompany the family to Butterworth Airbase but remains at school in Australia and is not otherwise entitled to free medical treatment, then not all dependants of the member are entitled to free medical treatment and in these circumstances the member would generally be liable to half the levy.

This Ruling applies to years of income commencing both before and after its date of issue. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).

The following definitions of key terms apply for this Ruling: dependants - has the same meaning as appears in subsection 251R(3) that is a spouse, a child less than 21 [2] years of age or a child aged 21 to 24 who is a full time student and the Defence Force member contributes to their maintenance. prescribed service - is defined by the Department of Defence to mean a health service rendered outside Australia for which, if rendered in Australia by a duly qualified practitioner, a person would be entitled to be paid a Medicare benefit. eligible person - is defined by the Department of Defence in relation to a member to mean: * a spouse of the member; and * a dependant child less than 21 years of age.

Where a Defence force member on an overseas posting necessarily incurs medical costs for a 'prescribed service' for an 'eligible person', the member is entitled to part reimbursement of these costs. It is considered that these reimbursement arrangements do not constitute free medical treatment in terms of paragraph 251U(1)(a).

Special conditions of service exist for Defence Force members posted to the Butterworth Airbase in Malaysia. Under long-standing arrangements the families of members accompanying them to Malaysia are entitled to free medical, dental, hospitalisation and optometry treatment from the RAAF medical organisation at Butterworth. Provided all dependants of a member are entitled to free medical treatment, the member is exempt from the Medicare levy. Otherwise the member is generally liable to half the levy.

The relevant principles from Taxation Ruling IT 2342 have been incorporated into this Ruling. Accordingly, Taxation Ruling IT 2342 is now withdrawn.