Private ruling: Medicare Levy Surcharge Tax Offset
Published: April 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a Medicare levy surcharge tax offset? | A1: Yes.

Relevant facts and circumstances: You were being underpaid in previous years. After some delays all back pay was paid and you received lump sum payments in arrears. The lump sum payments were for salary arrears greater than 12 months old. Because you exceeded the single taxpayer threshold and do not have private health care, a Medicare levy surcharge amount is payable.

Relevant legislative provisions: Medicare Levy Act 1986 Sections 8B to 8G | Income Tax Assessment Act 1997 Section 61-580 | Income Tax Assessment Act 1997 Section 61-590 | Income Tax Assessment Act 1936 Section 159ZR

Reasons for decision: Summary: Taxpayers without adequate private patient hospital cover through health insurance are liable to pay a Medicare levy surcharge if their income for Medicare levy surcharge purposes exceeds the relevant threshold. The Medicare levy surcharge is imposed by sections 8B to 8G of the Medicare Levy Act 1986 . As your income was over the threshold a Medicare levy surcharge was imposed. However, section 61-580 of the Income Tax Assessment Act 1997 (ITAA 1997) may allow a Medicare levy surcharge lump sum in arrears tax offset if the Medicare levy surcharge was imposed because you received an eligible lump payment in arrears in the year of income. You are entitled to a Medicare levy surcharge lump sum in arrears tax offset if the following conditions are met: a) you are an individual; and b) Medicare levy surcharge is payable by you for the current year because of: I. section 8B, 8C or 8D of the Medicare Levy Act 1986 ; or II. the A New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act 1999 ; and c) your assessable income or exempt foreign employment income for the current year includes one or more MLS lump sums paid to you; and d) the total of the MLS lump sums paid to you is greater than or equal to one-eleventh of the total of the following amounts: I. your normal taxable income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) for the current year; II. your exempt foreign employment income for the current year; III. your reportable fringe benefits total for the current year; IV. the amounts that would be included in your assessable income for the current year if, and only if, subsection 271-105(1) (family trust distribution tax) in Schedule 2F to the Income Tax Assessment Act 1936 were ignored; V. your reportable superannuation contributions for the current year; VI. your total net investment loss for the current year. VII. A Medicare levy surcharge lump sum for the tax offset purposes is defined in section 61-590 of the ITAA 1997 to be: A Medicare levy surcharge lump sum for the tax offset purposes is defined in section 61-590 of the ITAA 1997 to be: • A lump sum payment of eligible income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936 (ITAA 1936)) that is included in the individual's assessable income for the current year (but only to the extent that it accrued in an earlier income year); or • A lump sum payment that is included in the individual's exempt foreign employment income for the current year (but only to the extent that it accrued during a period ending more than 12 months before the date of which it was paid). Under section 159ZR of the ITAA 1936 eligible income includes salary or wages to the extent to which they accrued during a period ending more than 12 months before the date on which they are paid. In your case, you received lump sum payments in arrears as you were being underpaid during a period ending more than 12 months before you received the lump sum. Due to these payments you were subsequently charged the Medicare levy surcharge. As you satisfy the conditions, you are entitled to a Medicare levy surcharge tax offset under section 61-580 of the ITAA 1997.