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Medicare levy

Medicare levy

  1. Members may be entitled to a full or half Medicare levy exemption.

  2. Department of Veterans' Affairs Repatriation Health Card (Gold Card) holders are entitled to a full Medicare levy exemption if they meet the conditions described for a member in subsection 3.21.4. Certain other taxpayers covered by the Social Security Act are eligible for a full Medicare levy exemption if they also meet the conditions described below.

  3. Members who were entitled to a Medicare levy exemption for only part of the year will have the levy exemption applied on a proportional basis. A member is fully exempt from the Medicare levy if both these conditions are met.

    1. The member is entitled to full free medical treatment for the whole of the relevant financial year.

    2. The member meets any of these conditions.

      1. The member does not have any dependants (spouse, including de facto, and children under 16 years of age or under 25 years of age receiving full-time education at school or university and with separate net income of less than $1,786).

      2. The member has dependants who are also entitled to free medical treatment in their own right.

      3. The member has dependants who are all required to pay the Medicare levy on their separate income.

      4. The member has a spouse who is liable to pay the Medicare levy and the spouse contributes to the maintenance of the dependant.

    3. If a member and their spouse are both members, a child may be treated as a dependant of only one spouse. In this case, a family agreement may be entered into whereby one member will be exempt from the Medicare levy and the other spouse liable for one-half of the levy.

    4. If a member is not exempt from the Medicare levy, they are required to pay one-half of the levy.

    5. Special Medicare levy rules apply if the parents of a child are living separately and both are eligible for Family Tax Benefit Part A.

    6. See: Division 3, Application of Medicare levy to members on long-term posting overseas

Who are the dependants of a prescribed person?

  1. A member's exemption from the Medicare levy will be reduced by 50% if the member has a dependant who is not:

    1. also entitled to free medical treatment in their own right; or

    2. required to pay the Medicare levy because they do not derive sufficient separate income, including if the dependant is a spouse.

  2. A dependant means any of these persons.

    1. The member's spouse for the relevant period during the income year. De facto spouses who are living together are also recognised. Taxation rules for recognition of de facto spouses are different to ADF rules. For tax purposes, a de facto spouse is a person who lives with another person on a bona fide domestic basis as husband or wife.

    2. Any child under 16 years of age for any part of the income year.

    3. A child between 16 and 24 years of age, who was receiving full-time education and whose separate net income was less than $1,786.

  3. A member is taken to have contributed to the maintenance of a spouse or a dependant if they live together.

  4. If the parents of a child are living separately and both are eligible for Family Tax Benefit Part A, the child is treated as a dependant of each parent for Medicare levy exemption purposes based on the percentage of Family Tax Benefit A to which each person is entitled.

  5. A member is fully exempt from the Medicare levy if both these conditions are met.

    1. The member is entitled to full free medical treatment for all conditions for the whole of the relevant financial year.

    2. The member meets any of these conditions.

      1. They do not have any dependants (spouse, including de facto, and children under 16 years of age or under 25 years of age receiving full-time education at school or university and with separate net income of less than $1,786).

      2. They have dependants who are also entitled to free medical treatment in their own right.

      3. They have dependants who are all required to pay the Medicare levy on their separate income.

      4. They have a spouse who is liable to pay the Medicare levy and the spouse contributes to the maintenance of the dependant.

  6. If a member and their spouse are both members, a child may be treated as a dependant of only one spouse. In this case, a family agreement may be entered into whereby one member will be exempt from the Medicare levy and the other spouse liable for one-half of the levy.

  7. If a member is not exempt from the Medicare levy, they are required to pay one-half of the levy.

  8. Special Medicare levy rules apply if the parents of a child are living separately and both are eligible for Family Tax Benefit Part A.

  9. See: Division 3, Application of Medicare levy to members on long-term posting overseas.

    Example 1: A member is a mechanic in the Army for the entire income year and they are entitled to free medical treatment. The member's taxable income is $35,000. The member's spouse is a civilian, earns $37,000 and is liable to pay the Medicare levy on their taxable income. They have no children. The member is fully exempt from the Medicare levy because their spouse is liable to pay the Medicare levy on her taxable income.

    Example 2: Two members are married for the whole of the 2004-2005 year. They are both entitled to free medical treatment. One member (SGT Jones) has a taxable income of $75,000 and the other member (PVT Jones) has a taxable income of $40,000. They have two dependent children who are not liable to pay the Medicare levy.

    Before SGT Jones lodges their tax return, they enter into a family agreement stating that for the purposes of the Medicare levy, their two children are to be treated as dependants of PVT Jones and not treated as dependants of SGT Jones. SGT Jones will be fully exempt from the Medicare levy. SGT Jones must retain the family agreement for five years after lodging their tax return. PVT Jones will be liable for one-half of the Medicare levy.

Half levy exemption

  1. A member will be entitled to a half levy exemption if paragraphs a. and b. are met.

    1. The member meets any of these conditions.

      1. They are entitled to full free medical treatment for all conditions.

      2. They are a Department of Veterans' Affairs Repatriation Health Card (Gold Card) holder.

      3. They are a blind pensioner.

      4. They receive sickness allowance.

    2. The member has dependants who are not liable to pay the Medicare levy only because they do not derive sufficient separate net income.

  2. Half levy exemption is allowed for the period a member satisfied any of these conditions.

    1. The member did not have a spouse but had one or more dependants who were categorised in paragraph 1.b.

    2. The member had a spouse who was categorised in paragraph 1.b, regardless of whether the member also had dependant children.

    3. All these conditions apply.

      1. The member's spouse was in a category in paragraph 1.a.

      2. The member had a child who was a dependant of both the member and the spouse.

      3. The member's child was not in a category in paragraph 1.a. and the member nominated their spouse for the full Medicare levy exemption in a Family Agreement.

    Example: A pilot was in the Air Force for the entire year ended 30 June 2004 and the member is entitled to free medical treatment. The member's taxable income is $65,000. The member has a dependent spouse whose taxable income is $12,000 and three dependent children. The member's spouse and children do not fall within any exemption categories and are not liable to pay the Medicare levy only because each of their taxable incomes is below the Medicare low-income threshold. Therefore, the member is liable to pay half the Medicare levy worked out as follows:

    50% x $65,000 X 1.5% = $487.50

Low-income earners

  1. A member who for income tax purposes is regarded as a low-income earner may be entitled to a half levy exemption after the Medicare levy has been reduced by the low-earner concession. The member must satisfy the special low-income rules.

  2. See: www.ato.gov.au

  3. Low-income earners who were members for part of the year should seek advice about how the Medicare levy reduction applies to them.

Calculating the Medicare levy liability for a member for part of the income year

If a person is a member for only part of the income year, there is a proportionate reduction in the amount of Medicare levy payable. This is based on the number of days the person was a member as a proportion of the total number of days in the income year.

Example: A member joined the ADF on 1 February 2005. The member was entitled to free medical treatment from that date. The member's taxable income for the year was $25,000 and has no dependants. The member is eligible for a full Medicare levy exemption for 150 days from 1 February 2005 to 30 June 2005. The member's levy liability is:

1.5% x $25,000 x (365 - 150) / 365 = $220.89

Medicare levy surcharge

  1. A member who derives taxable income above certain thresholds may be liable for the Medicare levy surcharge if they (and their spouse and dependants) are not covered by private health insurance providing basic hospital cover. The Medicare levy surcharge is at the rate of 1% of the member's (and, if appropriate, the member's spouse and dependants) taxable income plus reportable fringe benefits amount (RFBA).

  2. Under the general income tax laws, if the sum of a taxpayer's taxable income and RFBA exceeds $50,000, the taxpayer must have private patient hospital cover or they will be liable for the Medicare levy surcharge. If the taxpayer is married, the sum of a taxpayer's and the taxpayer's spouse's taxable income and RFBA must exceed $100,000 before they will be liable for the Medicare levy surcharge for not having private patient hospital cover. The threshold remains the same for the first dependant child but increases by $1,500 for each dependant child after the first. The higher $100,000 threshold, increased if appropriate, is used for a sole parent with a dependent child (or children).

  3. If the member has private patient hospital cover for only part of an income year but their income exceeds the relevant threshold, their liability for Medicare levy surcharge is pro-rated accordingly.

  4. Members should also note that for Medicare levy surcharge purposes, a dependant includes these children.

    1. A child in receipt of full-time education who is 16 years of age or older but less than 25 (regardless of the level of separate net income); and

    2. A child whose parents are separated (the child is potentially a dependant of each parent, including the parent not in receipt of family assistance for the child).

  5. A member is deemed to have private patient hospital cover for Medicare levy surcharge purposes by virtue of their entitlement to full free medical treatment. Therefore, if the member has no dependants, the member is not required to have private patient hospital cover and will not be liable for the Medicare levy surcharge.

  6. If a member's spouse (and any dependants) are also all members or otherwise entitled to full free medical treatment, the member, the member's spouse and dependants are also not required to have private patient hospital cover and none will be liable for the Medicare levy surcharge.

  7. If a member has a spouse who is liable for the Medicare levy on their separate income, the member's spouse must have private patient hospital cover in order for both the member and their spouse to not be subject to the Medicare levy surcharge (assuming their combined income exceeds the threshold). If the couple have children, the private patient hospital policy must also cover the children. Even though the member is entitled to a full exemption from the Medicare levy, the spouse (and any children) are dependants of the member for Medicare levy surcharge purposes.

  8. Similarly, if a member has a spouse who is not liable for the Medicare levy, the member's spouse must have private patient hospital cover in order for both the member and their spouse not to be liable for the Medicare levy surcharge (assuming their combined income exceeds the threshold). If the couple have children, the private patient hospital policy must also cover the children. Even though the member is entitled to a half-exemption from the Medicare levy, the spouse (and any children) are dependants of the member for Medicare levy surcharge purposes.

  9. Example 1: A member is single and has no dependants and no private patient hospital cover. The member's taxable income for Medicare levy surcharge purposes is $58,000. Because the member is deemed to have private patient hospital cover for Medicare levy surcharge purposes by virtue of their entitlement to full free medical treatment, and because they have no dependants, the member will not be liable for the Medicare levy surcharge.

    Example 2: A member has a civilian spouse and they have one dependent child. The spouse is not entitled to full free medical treatment and does not have private patient hospital cover. The member's taxable income for Medicare levy surcharge purposes is $72,000 and the spouse's taxable income for Medicare levy surcharge purposes is $35,000. Accordingly, their combined taxable income for Medicare levy surcharge purposes is $107,000 which is greater than the $100,000 threshold.

    Even though the member is exempt from the Medicare levy, they are not deemed to have private patient hospital cover for Medicare levy surcharge purposes. Accordingly, the member will be liable for the Medicare levy surcharge of 1% of $72,000 and the spouse will be liable for the Medicare levy surcharge of 1% of $35,000.

    The member's total Medicare levy liability will be:
    Medicare levy (no liability)
    $0
    Medicare levy surcharge - 1% of $72,000
    $720
    Total Medicare levy and surcharge payable
    $720

     

    The member's spouse's total medicare levy liability will be:
    Medicare levy - 1.5% of $35,000
    $525
    Medicare levy surcharge - 1% of $35,000
    $350
    Total Medicare levy and surcharge payable
    $875

Medicare levy surcharge and overseas service

The Medicare levy surcharge applies in a similar way to members on long-term posting overseas.

See also: Division 3, Application of Medicare levy to members on long-term posting overseas

Application to Reservists: Yes.



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taxation.management@defence.gov.au