Defence Force Members – Beware of the Medicare Levy & Levy Surcharge

What is the Medicare Levy?

Medicare is the scheme that was introduced in the mid-1970s with the intention of providing Australian residents with access to free health care. To help fund this scheme, most taxpayers over a certain income level, pay a Medicare levy of 1.5% of their taxable income.

What is the Medicare Levy Surcharge?

Individuals and families on incomes above the Medicare levy surcharge thresholds who do not have an appropriate level of private patient hospital cover, pay the Medicare levy surcharge for any period during the year that they did not have this cover.

The Medicare levy surcharge is in addition to the 1.5% Medicare levy and is charged at 1% on the combined total of your taxable income and reportable fringe benefits (if any).

Who is Exempt from the 1.5% Medicare Levy and the 1% Medicare Levy Surcharge?

Generally, a prescribed person is exempt from the Medicare Levy and the Medicare Levy Surcharge.  A prescribed person is defined in paragraph 251U(1)(a) of the Income Tax Assessment Act (1936) to include a person who was a member of the defence force and was entitled to free medical treatment, or a relative of a member of the defence force who was entitled to free medical treatment. However, a person will not be a prescribed person if any of their dependants are not prescribed persons (subsection 251U(2) of the ITAA 1936).

For Medicare Levy exemption, dependant means an Australian resident you maintained who was:

  • your spouse;
  • your child aged less than 21 years; or
  • your child aged 21 to 24 years old, who was receiving full-time education at a school, college or university and whose taxable income was less than a prescribed threshold.

Does a Defence Force Member with no dependants and no Private Hospital cover have to pay the Medicare levy or Medicare Levy Surcharge?

No, so long as they are entitled to free medical treatment.

Would a Defence Force Member who is married, have to pay the Medicare levy if their spouse has to pay the Medicare Levy?

No

Would the Defence Force Member have to pay the Medicare levy if their spouse did not have to pay the Medicare Levy (for example, because their taxable income was below the lower Medicare levy threshold)?

Yes, but only Half of the Medicare Levy (that is, 0.75%)

What if a Defence Force Members spouse was also entitled to full free medical treatment for all conditions under the Defence Force arrangements?

Both the DFM and their spouse would be exempt from the Medicare Levy and the Medicare Levy Surcharge, even if the spouse does not have appropriate private health insurance.

When do we have to pay the 1% Medicare Levy Surcharge?

The Medicare Levy Surcharge would be payable by the DFM and their spouse if the spouse did not have an appropriate level of private patient hospital cover for the whole of the year and their combined income was above the surcharge income threshold ($154,000 for the 2010-2011 income year).

What if the Defence Force Member does not have Private Hospital cover but their spouse does?

The DFM would be exempt from the Medicare Levy Surcharge if their spouse had an appropriate level of private patient hospital cover for the whole of the year.