Titcher and Commissioner of Taxation

[2007] AATA 2008

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 2008

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2007/3567

TAXATION       APPEALS         DIVISION		)
Re		JOANNE TITCHER

Applicant

And COMMISSIONER OF TAXATION  

Respondent

DECISION

Tribunal Mr B.H. Pascoe, Senior Member

Date3 December 2007

PlaceMelbourne

Decision The Tribunal affirms the decision under review.

B.H. Pascoe

Senior Member

INCOME TAX – medicare levy surcharge – receipt of arrears of weekly workers compensation in one year – liability for surcharge – income in excess of minimum amount for liability – not a prescribed person – no offset available in relevant year.

Medicare Levy Act 1986

Income Tax Assessment Act 1936

Taxation Administration Act 1953

REASONS FOR DECISION

3 December 2007 Mr B.H. Pascoe, Senior Member

1.      This is an application to review a decision of the respondent, Commissioner of Taxation, to disallow the objection lodged by the applicant, Ms J. Titcher, against an amended assessment of income tax in respect of the year ended 30 June 2005.  The objection was against the imposition of a Medicare Levy Surcharge (MLS) in that amended assessment.

2. As both parties consented to the review being determined without a hearing and the Tribunal was satisfied that the issues for determination can be adequately determined in the absence of the parties, the review of the decision was on consideration of the documents lodged with the Tribunal and without holding a hearing pursuant to s 34J of the Administrative Appeals Tribunal Act 1975.

3.      In her return of income for the year ended 30 June 2005, Ms Titcher showed a taxable income of $135,920 including $127,771 as salary and wages.  An assessment based on this return was issued on 11 November 2005.  Subsequently, it was determined that the $127,771 was arrears of workers compensation received in a lump sum in March 2005 representing weekly entitlements in relation to the following years:-

Year ended 30 June 2002	$  13,153
Year ended 30 June 2003	$  36,040
Year ended 30 June 2004	$  39,062
Year ended 30 June 2005	$  39,516
$ 127,771

As a consequence, the respondent issued an amended assessment on 6 January 2006 to allow a lump sum payment in arrears tax offset of $16,119 pursuant to s 159ZRA of the Income Tax Assessment Act 1936 (the 1936 Act).  This section was introduced by Act No 153 of 1988 to provide such an offset where arrears of salary and wages are received in a lump sum in a later year resulting in a higher amount of tax in the year of receipt.

4.      On 24 May 2007, the respondent issued a further amended assessment to include a liability of $1,359.20 for MLS.  It was this liability to which Ms Titcher objected.

5. Liability to MLS is determined by s 8B of the Medicare Levy Act 1986  which provides:

(1)This section applies to a person during a period if during the whole of the period:

(a)the person is not a married person; and

(b)the person does not have any dependants; and

(c)the person is not covered by an insurance policy that provides private patient hospital cover; and

(d)the person is not a prescribed person. …

(2)If the total of a person’s taxable income and reportable fringe benefits total (if any) exceeds $50,000, the amount of the levy that, apart from this section, would have been payable by the person under this Act for the year of income is to be increased:

(a)if this section applies to the person for the whole of the year of income—by 1% of the person’s taxable income; or

(b)if this section applies to the person for only some of the days in the year of income—by the amount worked out using the formula:

(1% of the person’s taxable income) x Number of those days

Number of days in the

year of income

The respondent took the view that the section applied to Ms Titcher and the MLS was calculated as one per cent of her taxable income for the year ended 30 June 2005.

6.      Ms Titcher submitted that the imposition of MLS was unfair and not in accordance with the intention of the legislation in imposing such a levy.  She argued that the income relevant to the year ended 30 June 2005 was $47,664 and below the $50,000 limit.  She maintained that the introduction of the levy was to encourage high income earners to purchase private health insurance.  She said that it was not until March 2005 that she had her workers compensation claim settled and, prior to that time, it was not foreseeable or realistic to take out private health insurance. 

7. There is no doubt that the $127,771 was correctly assessed as income in the year of receipt being the year ended 30 June 2005. The additional income tax as a result of higher marginal rates was compensated by the tax offset under s 159ZRA. This offset is solely against income tax and not the MLS. The anomaly in relation to MLS was recognised by Government by the introduction of the Tax Laws Amendment (2006 Measures No 3) Act 2006 and the insertion of Subdivision 61-L into the Income Tax Assessment Act 1997 (the 1997 Act). This provision provided for an offset against MSL similar to that provided by s 159ZRA of the 1936 Act. Unfortunately for Ms Titcher this amendment applied from 1 July 2005 only, so that it was not applicable to the year ended 30 June 2005.

8. The respondent was of the view that s 8B of the Medicare Levy Act 1986 applied to Ms Titcher for the whole of the year ended 30 June 2005.  In her objection, Ms Titcher stated that for most of 2004/2005 … I was receiving a (part) Disability Support Pension.  While this statement was made in the context of her argument that it was neither foreseeable nor realistic to take out private health cover, this statement could be regarded as a ground of her objection. If it could not be so regarded it is clearly an appropriate case for the Tribunal to exercise its discretion under s 14ZZK of the Taxation Administration Act 1953 and allow a ground of objection that she was a prescribed person for that part of the year in which she was in receipt of a Disability Support Pension.  In a letter to the Tribunal received on 8 November 2007, Ms Titcher stated that she received a Disability Support Pension (part) between 27/8/2003 and 19/11/2004.

9.      Section 251U of the 1936 Act contains the definition of a prescribed person for the purposes of s 8B of the Medicare Levy Act 1986. In general such persons are those in receipt of certain benefits under such legislation as the Veterans’ Entitlements Act 1986 and the Social Security Act 1991.  However, a person in receipt of a disability support pension is only a prescribed person pursuant to s 251U where the rate of that pension was calculated under either s 1065 or s 1066B of the Social Security Act 1991. Both of these sections set out the rate of pension payable to a person who is permanently blind. As a result, a recipient of a disability support pension for conditions other than permanent blindness is not a prescribed person. Ms Titcher has confirmed that the disability support pension received from 1 July 2004 to 19 November 2004 was for a psychiatric condition. Consequently, the pension paid to Ms Titcher does not exclude her from the application of s 8B of the Medicare Levy Act 1986. 

10. The result of the foregoing is that the legislation provides no basis for the exclusion of liability to MLS in the circumstances in which Ms Titcher found herself in relation to the year ended 30 June 2005. She saw the imposition of the surcharge in respect of that year as inequitable and the Tribunal agrees with that view. Unfortunately, the inequity was not recognised by the legislature until too late to provide her with relief and no other specific provision can provide assistance. The only possible provision is s 340 of Schedule 1 to the Taxation Administration Act 1953 which allows the Commissioner to release a person for liability, including MLS, if, on application by that person, it can be shown that the person would suffer serious hardship if required to satisfy the liability.  As no application has been made, this issue is not before the Tribunal.

11.     Unfortunately, the Tribunal has no option other than to affirm the decision under review.

I certify that the 11 preceding paragraphs are a true copy of the reasons for the decision herein of
Mr B.H. Pascoe, Senior Member

Signed:     Dianne Eva
  Clerk

Date of Hearing  On Papers
Date of Decision  3 December 2007
Advocate for the Applicant       Self-Represented
Advocate for the Respondent   Renae Woolley, ATO Legal Services Branch