Tax Return:: 2023FY Medicare Levy Surcharge (MLS)

Hello, this is your tax accountant, P&C Tax Professionals.

The tax season is approaching upon us and if you’re an Australian taxpayer, it is crucial to stay informed about some of the key items that could affect your tax return such as the Medicare Levy Surcharge (MLS). In this blog post, we will unravel the intricacies of the MLS including its implications on your tax return and the income threshold and rates for the 2023 financial year.

<Who has to pay the MLS?>

If you are required to pay the Medicare levy, you might also need to pay an additional amount called the Medicare levy surcharge (MLS) on your tax return if you satisfy both of the conditions below:

1. You, your spouse, and your dependent children do not hold an appropriate level of private patient hospital cover (simply having an extras cover will not make you exempt from paying the MLS)

2. Your income for Medicare levy surcharge (MLS) purposes exceeds a certain threshold

The MLS is an extra payment that you may have to pay in addition to your Medicare levy. Therefore, in order to avoid future payments of the MLS, you have the option to consider obtaining an appropriate level of private patient hospital cover for yourself, your spouse, and all your dependents.

<2023FY MLS Income Thresholds and Rates>

Your income for MLS purposes is used to determine whether you are required to pay the MLS and to work out the specific MLS rate applicable to you.

In the case you have a spouse, the combined income will be considered for MLS purposes.

Your income for MLS purposes consists of the following components for you (and your spouse, if applicable):

1. Taxable income

> This includes the net amount on which family trust distribution tax has been paid.

> It does not include any assessable first home super saver (FHSS) released amount for the financial year under the FHSS scheme.

2. Reportable fringe benefits

3. Total net investment losses, which is the total of:

> Net financial investment losses

> Net rental property losses

4. Reportable super contributions, which is the total of:

> Reportable employer super contributions

> Deductible personal super contributions

5. If you have a spouse, it includes their share of the net income from a trust on which the trustee is liable to pay tax (as per section 98 of the Income Tax Assessment Act 1936), which hasn’t been included in their taxable income.

Once you have calculated your income for MLS purposes, you can refer to the MLS income threshold table for the 2023 financial year to identify the applicable MLS rate that corresponds to your income.

<Source: Australian Taxation Office https://www.ato.gov.au/Individuals/Medicare-and-private-health-insurance/Medicare-levy-surcharge/Medicare-levy-surcharge-income,-thresholds-and-rates/>

For every additional MLS dependent child after your first child, the family income threshold is raised by $1,500. E.g., If you have 3 MLS dependent children, your base tier family income threshold will increase to $180,000 + $1,500 +$1,500 = $183,000.

<Who will be exempt from paying the MLS>

1. If your income falls below the base income threshold, you will be exempt from paying the Medicare levy surcharge (MLS). The base income thresholds are as follows:

> $90,000 for individuals

> $180,000 for families, with an additional $1,500 for each dependent child after the first child.

2. If you hold and maintain appropriate private hospital cover throughout the entire financial year, you will also be exempted from paying the MLS.

<Example: Medicare Levy Surcharge for a Single Adult>

During the 2022-23 financial year, Kevin did not have the appropriate level of private patient hospital cover and is:

> 27 years old

> Single with no dependents

> Kevin’s taxable income amounts to $70,000

> Kevin has total reportable fringe benefits of $25,000 that he declares on his 2023FY tax return

> He also has a net financial investment loss of $2,000 from his shares

In this case, Kevin’s income for MLS purposes is $97,000 ($70,000 taxable income + $25,000 total reportable fringe benefits + $2,000 net financial investment losses)

Therefore, Kevin is a Tier 1 income earner and the Tier 1 MLS rate that applies to him is 1%.

The amount of MLS is calculated based on his income for MLS purposes as follows:

Kevin’s MLS liability for 2022-23 is $970 ($97,000 x 1%).

As you prepare to lodge your tax return for the 2023 financial year, understanding the intricacies of the Medicare Levy Surcharge can help you to make informed decisions and potentially mitigate any additional costs. Remember to consult with a tax professional such as P&C Tax or seek further guidance from the Australian Taxation Office to ensure accurate compliance with the MLS. For further enquires, please feel free to contact us through our official Facebook Page (P&C Tax Professionals – Australia) or simply send us an email (pnctax@naver.com).

Thank you and bye for now!