10 March 1997 Internal T.I. 9700787 - FOREIGN TAC CREDIT - AUSTRALIAN MEDICARE LEVY

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Does the Australian Medicare Levy qualify as an income or profits tax?

Position:

Yes.

Reasons:

Collected pursuant to and is a component part of the Income Tax Assessment Act and is based on the same taxable income base as for regular income tax purposes.

			March 10, 1997
	International Tax	International
                                              Section
	   Services Office		David R. Senécal
(613) 957-9796
	Attention:  France Marengère
			970078

Australian Medicare Levy

This is in reply to your memorandum of January 8, 1997, wherein you request our views concerning whether the Medicare levy (the "Levy") imposed by Australia qualifies as a "non-business-income tax" as defined in subsection 126(7) of the Income Tax Act (the "Act"). As your question relates to a taxpayer's ability to claim a foreign tax credit against Canadian tax otherwise payable, we are assuming that the taxpayer in question is a resident of both Canada and Australia pursuant to their respective domestic tax laws and that the taxpayer is considered to be a resident of Canada for purposes of the Canada-Australia Income Tax Convention on the basis of the tie-breaker rules in Article 4 of that Convention.

Our understanding of the Levy is as follows:

• Part VIIB of the Income Tax Assessment Act 1936 (the "Assessment Act") imposes the Levy on taxable incomes of persons residing in Australia. The levy provides funds for the Medicare health scheme which has operated since 1984.
• The rate of the Levy based on a percentage of taxable income (currently 1.5%), and the various income thresholds for payment of the Levy are set out in the Medicare Levy Act 1986 as amended from year to year. The Levy is payable on the taxable income of an individual who at any time during the income year is for income tax purposes a resident of Australia.
• The Levy is collected in conjunction with and in the same way as income tax including provisional levy and PAYE deductions.
• For most purposes of the Assessment Act, the Levy is treated as income tax so that, for example, a person who receives income from overseas that is included in taxable income will be entitled to a credit for any foreign taxes on that income against the Australian liability to income tax and Levy.
• The Levy payable by a person in accordance with Part VIIB of the Assessment Act is payable in addition to any tax payable by him in accordance with any other provision of the Assessment Act.
• The notice of assessment of a taxpayer in respect of income of a year of income that the Commissioner is required to serve on the taxpayer under section 174 of the Assessment Act shall, if the taxpayer is liable in respect of that income to pay Levy in addition to any tax payable under the provisions of the Assessment Act other than Part VIIB, specify the amount of the Levy.

Comments

In view of the fact that the Levy is a component part of the Australian income tax act (i.e., the Assessment Act) and that it is based on the same computation of taxable income as that used for regular income tax purposes, we are of the opinion that the Levy should be treated as being an income or profits tax which would qualify as a non-business-income tax for the purposes of the foreign tax credit under paragraph 126(1)(a) of the Act.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch