An individual who is an Australian resident at any time during the income year is liable to pay Medicare levy based on his or her taxable income. Medicare levy is also payable by some trustees.

Some individuals are entitled to full or partial exemption from the levy, or to relief from it.

to find the rules about Medicare levy

If you refer to section 251 S (1) & (2) of the 1936 Assessment Act you will find that it is a levy, in addition to the tax already payable on taxable income, which is imposed by the Medicare Levy Act (1983).

Section 251 T lists 3 classes of persons who do not have to pay the levy.

Look at the first category (251 T <a>)

Refer section 251 T

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Bear in mind that section 251U(2) withholds 'prescribed person' status unless all dependants

are also prescribed.

Section 251U(3) treats defence, repatriation or health care card holders as prescribed persons for half the levy period if this is not the case.

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Section 251 S(1) requires the levy to be paid at the rate applicable under the relevant Act imposing the levy

This Act is the Medicare Levy Act 1986

Section 6

(1) The rate of levy payable by a person upon a taxable income is 1.5%.

Taxable income = $10,000

.015 X $10,000 = 150

Section 7(1) relieves a person from paying the Medicare levy for the 1998 income year where taxable income does not exceed $13,389.

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Taxable income = $9560. How much Medicare levy will be paid?

If a taxpayer is

.... Section 9(1) uses a different 'floor', referred to as the 'family income threshold' (defined at section 9(5)).

The family income threshold is $22,594 but this is increased by $2,100 for each 'dependent child'

Now look again at section 9(1)

If the taxpayer is

rebates, then no levy is payable unless the family income (taxable income of taxpayer - and spouse if there is one -) exceeds the family income threshold of $16,110 + $2,100 x no. Of dependants.

You could be excused for thinking that 'legally married' might mean what it seems to mean - this is not the case.

Section 3(3) deems married persons living separately & apart not to be married.

Section 3(4) imposes the definitions used in section 251 R to 251 Y of the Income Tax Assessment Act on the Levy Act. Section 251R(2) deems a man and woman who live together on a bona fide domestic basis to be 'legally married'.

A child is deemed to be dependent upon the parent to whom the family allowance is paid.

Where the taxable income exceeds the threshold figure by a small amount, a special rate applies - refer CCH Master Tax Guide para 2-330 for details.

From 1 July 1997, higher income individuals and families who do not have private patient hospital insurance will pay an extra 1% of their taxable income for the Medicare levy surcharge. This is in addition to the normal 1.5% Medicare levy.

You will have to pay the Medicare levy surcharge if you do not have the necessary private patient hospital insurance and you are:

If your taxable income is below the income threshold, you will not have to pay the Medicare levy surcharge.

If your taxable income is above the income threshold and you take out the necessary private patient hospital insurance cover for you and for all your dependants, you will not have to pay the Medicare levy surcharge.

If you are normally exempt from the Medicare levy because you are a prescribed person*, for example a defence force member, and you do not have any dependants, you will not be liable for the Medicare levy surcharge. The amount of your taxable income is not considered in this case.

However, if you have dependants and you are a prescribed person with a taxable income above the threshold, you will be liable for the Medicare levy surcharge if any of your dependants are not prescribed persons and they do not have private patient hospital insurance.

If you have to pay the Medicare levy surcharge, we will calculate it when you lodge your tax return.

If you are an employee, you can have extra tax instalments deducted from your pay to cover the Medicare levy surcharge. To do this, you will need to fill in a Medicare Levy Variation Declaration and give it to your employer. The Medicare Levy Variation Declaration is available from the ATO.

You must have private patient hospital insurance cover under a health insurance policy that at least covers the fees and charges in respect of a stay in hospital. Ancillary cover does not constitute private patient hospital insurance.

Providing you contribute to their maintenance, your dependants for the Medicare levy surcharge are:

If you had a spouse for the whole year and your spouse worked, you are still considered to have maintained your spouse for the whole year.

Examples

Example 1

Juan is single and he has no dependants. Juan's taxable income is $52 000. He has no private patient health insurance cover. Juan is liable for the additional 1% Medicare levy surcharge as his taxable income is over the $50 000 threshold.

Juan's total Medicare levy liability will be:

Example 2

Jack and Kathleen are married and have two dependent children. Jack is covered by private patient health insurance but Kathleen and their children are not. Jack's taxable income is $65 000 and Kathleen's taxable income is $40 000.

Jack and Kathleen have to pay the additional 1% Medicare levy surcharge as their combined taxable income is over the $101 500 threshold - $100 000 plus $1500 for each dependent child after the first.

Jack and Kathleen's total Medicare levy liability will be:

Jack

* Even though Jack is covered by private patient hospital insurance, he still has to pay the Medicare levy surcharge because Kathleen and their dependent children are not covered.

Kathleen

Changes will be made to the tax offsets and Medicare levy thresholds that may affect senior Australians. In addition, people who receive Australian Government pensions but are not of age pension age will be affected by increases to the Medicare levy income threshold.

Legislation has been introduced and if passed will have effect for the 2000-2001 and subsequent income years. To assist practitioners with their preparation for the new tax year below is some information on how the measures are proposed to operate and how the ATO will manage the proposed changes if the legislation is passed. We will inform you of any further developments.

The proposed changes to the low income age persons tax offset and the pension tax offset for people who have reached age pension age will mean that these people will not have a tax liability where their income is below the new thresholds in the table below.

The new thresholds for senior Australians apply to taxpayers who are at least 65 years old for males or 61.5 years old for females at 30 June 2001. Different age conditions apply to recipients of pensions from the Department of Veterans' Affairs. The tax offset for senior Australians reduces at the rate of 12.5 cents for each dollar over the new 2001 thresholds and cuts out at the taxable income levels shown on the right hand column of the table.

The thresholds that apply to "Other Eligible" taxpayers relate to those below the age criteria who receive an eligible Australian Government pension. Their income thresholds are unaffected by the proposed measures.

The table also shows the new Medicare levy thresholds that will apply to senior Australians and other eligible taxpayers affected by these changes. There is also an increase in the Medicare levy family income threshold from $23299 to $31729 for those taxpayers who qualify for the senior Australians tax offset.

A small number of PAYG instalment taxpayers will be entitled to a full or part tax offset and will be able to exit the PAYG Instalment system.

Annual PAYG Instalment notices have already issued to annual payers. Taxpayers who have paid their annual instalment can lodge their 2001 tax return to claim the instalment paid. Taxpayers who have not paid their annual instalment and wish to leave the PAYG system or pay a reduced amount, can call 13 61 40 and ask the ATO to vary their account.

The ATO will identify eligible quarterly payers and remove them from the PAYG Instalment system before the June quarter activity statement issues. Affected taxpayers will be notified.

Activity statements will still need to be lodged if there are obligations other than PAYG Instalments such as GST, PAYG, Tax Withheld or FBT.

Senior Australians and other Australian government pension recipients whose taxable incomes are at or below the proposed new thresholds may not be required to lodge an income tax return. However, as usual, those taxpayers claiming a refund of tax credits will need to lodge a tax return.

The changes do not require alteration to return forms. We will use our systems to identify taxpayers who will be affected by the proposed changes. For this purpose we will be making changes to our processing systems. We expect to have these in place early in the new financial year. This won't affect normal processing. Any affected returns will be held and processed immediately after implementation.

The Government also proposes to make three changes to improve the operation of the termination payments surcharge. These include a change to the calculation of adjusted taxable income so that individuals who receive moderate termination payments and who otherwise do not have high incomes will have a reduced or no surcharge liability.

The other two amendments will remove the sunset provisions applying to termination payments surcharge and superannuation contributions surcharge; and remove the termination payments surcharge liability from the excessive component of an employer ETP.

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