ATO Interpretative Decision

ATO ID 2005/364 (Withdrawn)

Income Tax

• This ATO ID is withdrawn. Guidance relating to the issue addressed in this ATO ID can be found in Family and dependants for Medicare levy surcharge purposes (QC 27044).
  This document has changed over time. View its history.

Issue

Is a taxpayer's family surcharge threshold, as calculated under section 3A of the Medicare Levy Act 1986 (MLA), reduced if a dependant of the taxpayer is not a dependant for the whole of the year of income?

Decision

No. A taxpayer's family surcharge threshold, as calculated under section 3A of the MLA, is not reduced if a dependant of the taxpayer is not a dependant for the whole of the year of income.

Facts

The taxpayer and their spouse have three children who live at home.

Two of the children are under 16 years of age, or 21 years of age for the 2005-06 and later years of income, and the third is 18 years of age, or 22 years of age for the 2005-06 and later years of income, and received full time education at school for approximately half of the year of income.

The taxpayer does not have private patient hospital cover for any part of the year of income.

Reasons for Decision

Subsection 8D(1) of the MLA imposes an increase in the Medicare Levy (Medicare Levy Surcharge) for married taxpayers for the period they or any of their dependants, who are not prescribed persons, are not covered by an insurance policy which provides for private patient hospital cover.

Under subsection 8D(3) of the MLA the amount of the surcharge is 1% of the person's taxable income if, among other things, the sum of the taxpayer's and their spouse's taxable income and reportable fringe benefits exceeds the family surcharge threshold.

Family surcharge threshold is defined in section 3A of the MLA as:

(a)

$100,000 or

(b)

If a person has 2 or more dependants who are children - the amount worked out as follows:

$100,000 + ($1,500 x Number of dependants who are children - 1)


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

Through the interaction of sections 251R and 251V of the ITAA 1936

... a person shall be taken to have been a dependant of another person for the purposes of Part VIIB during any part of the year of income in which -

(a)

the first-mentioned person was a resident of Australia;

(b)

the first-mentioned person was -

(i)

the spouse of the other person;

(ii)

a child of the other person less than 16 years of age, or 21 years of age for the 2005-06 and later years of income; or

(iii)

a child of the other person not less than 16 years of age, or 21 years of age for the 2005-06 and later years of income, but less than 25 years of age and receiving full-time education at a school, college or university; and

(c)

the other person contributed to the maintenance of the first-mentioned person.

The taxpayer's three children were dependants for either the full year or, in the case of the student under 25, for part of the year of income.

As indicated above, under section 3A of the MLA the family surcharge threshold is increased by $1500 for the second and subsequent dependants who are children. It does not require a dependant to be a dependant for the full year of income.

As such, the taxpayer is entitled to increase their family surcharge threshold, as calculated under section 3A of the MLA, by $1500 for each of their second and third children. The taxpayer's family surcharge threshold is not reduced because one of the dependants of the taxpayer is not a dependant for the whole of the year of income.

Year of income:  30 June 2005

Legislative References:
Medicare Levy Act 1986
   section 3A
   subsection 8D(1)
   subsection 8D(3)

Keywords
Medicare levy
Medicare levy surcharge

Business Line:  Small Business/Individual Taxpayers

Date of publication:  23 December 2005

ISSN: 1445-2782