Avoiding the Medicare Levy Surcharge

How does the Medicare Levy surcharge apply to me?

2021 Tax Year

The Medicare Levy Surcharge (MLS) is a tax that helps pay for the public health system that so many Australians and Australian Residents benefit from, this is in ADDITION to the 2% Medicare Levy which is compulsory to everyone who earns more than $26,079 in the current financial year.

The MLS is income tested using your ‘adjusted taxable income’ which includes:

• Taxable Income

• Reportable Fringe Benefits

• Reportable Superannuation Contributions (from both your employer and your own personal contributions)

• Net Investment Loss (the financial investment deduction amount that exceeds your financial investment income)

• Net Rental Property loss (the deductions attributable to a rental property that exceeds the rental property income)

• The amount where a family trust distribution tax has been paid.

Do I have to pay the Medicare Levy Surcharge?

If your adjusted taxable income goes over the income tier threshold, and you don’t have the appropriate level of Private Hospital Cover, then the answer is yes. You will need to pay a percentage of the MLS depending on where your income level is at.

See below the Income Threshold:

*Note for Families – The family income threshold increases by $1,500 after the first MLS dependent child.

E.g. A couple have three children and their combined income is $180,00 they add on an additional $1,500 per MLS dependent child which increases their threshold to $183,000 which means they then avoid paying the MLS.

How can I avoid paying for the Medicare Levy Surcharge?

The easiest way to avoid paying for the MLS is by taking out Private Hospital Cover with a registered health insurer which has an excess of:

$500 or less (for a policy covering one person only)

$1,000 or less (for all other policies)

*Note – General cover or ‘extras’ cover is NOT private hospital cover.

If you are unsure whether your have the appropriate level of cover, give your health insurer a call and they can let you know.

Is taking out Private Hospital Cover worth it?

That decision is entirely up to you, if you are taking out Private Hospital Cover for tax purposes it would be worth looking into whether the premium you pay will cost you more than the MLS.
 

If you are taking Private Hospital Cover for health reasons, then the cost is priceless.

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Note that the information provided is general in nature and subject to change, please contact one of our professionals who can evaluate your circumstances and provide more accurate advice to your current situation.