All Australian resident taxpayers are liable to a 2% Medicare Levy, based on their taxable income during the year should that income exceed pre-determined thresholds that apply to both individuals and families. There are some specific situations where individuals may be entitled to an exemption from the Medicare Levy. (refer below)
Private Health Insurance does not reduce or remove the Medicare Levy, but it does however limit the Medicare Levy Surcharge (details below), which applies to higher income individuals and families who do not maintain eligible Private Hospital Insurance Cover.
How the Medicare Levy Surcharge Works
The Medicare Levy Surcharge is levied on all Australian taxpayers who do not have private hospital cover and who earn above a certain income. The surcharge aims to encourage individuals to take out private hospital cover, and where possible, to use the private system to reduce the demand on the public Medicare system.
The surcharge covers you and your dependents. Your dependents include your spouse, any of your children who are under 21 years of age, or any of your student children who are under 25 years of age.
The surcharge rate can vary between 1% – 1.5% of your income depending on your total taxable income. It is in addition to the Medicare Levy of 2%, which is paid by most Australian taxpayers.
Medicare Levy Exemptions
You may be entitled to an exemption from the Medicare Levy if you qualify under one of the following categories:
- You are a member of the Australian Defence Forces and receive, or are entitled to receive, full medical treatment under the Defence Force plans.
- You are entitled to free medical expenses under the Veteran’s Affair.
- You qualify as a non-resident for tax purposes.
- You qualify for sickness benefits or a blind pension and hold a non-income tested health card.
- You are a resident of Norfolk Island.
- You hold a certificate of exemption, issued by Medicare, indicating that you are not entitled to Medicare benefits.
Defence Force Members and Medicare Levy Exemptions
Members of the Australian Defence Force who are entitled to full medical treatment under the Australian Defence Force health care program are eligible to receive an exemption from the 1.5% Medicare Levy. The exemption applies for the number of days in the year for which you were covered by the Australian Defence Force health care program.
A full exemption is available if you:
- Have no dependants, or all of your dependants are also covered by an exemption category.
- Have a dependant spouse (or children) who earns a level of taxable income that requires them to pay Medicare.
- Have dependent children who do not pay Medicare and a spouse who is also in an exemption category. This requires one of the couple to elect to receive the half the Medicare exemption.
In cases where the above conditions are not met, you may be entitled to a half Medicare exemption for the days of the year in which you qualify.
For more information, visit: Military Tax Deductions
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