Not tax advice. Computation tools only. Have a professional review before filing.
openaccountants
openaccountants/skills/au-medicare-levy.md
View on GitHubClone the repo
git clone https://github.com/openaccountants/openaccountants.git ~/.claude/skills/openaccountants
au-medicare-levy.md356 lines19.0 KB
v20
1---
2name: au-medicare-levy
3description: >
4 Use this skill whenever asked about the Australian Medicare Levy, Medicare Levy Surcharge (MLS), low-income reduction thresholds, family thresholds, surcharge tiers, private health insurance (PHI) rebate interaction, or Medicare levy exemptions. Trigger on phrases like "Medicare levy", "Medicare surcharge", "MLS", "do I pay Medicare levy", "low income Medicare", "Medicare levy reduction", "Medicare levy exemption", "private health insurance rebate", "PHI rebate", "M1", "M2", or any question about Medicare-related levies on an Australian tax return. ALWAYS read this skill before touching any Medicare levy work.
5version: 2.0
6jurisdiction: AU
7tax_year: 2024-25
8category: international
9---
10 
11# Australia Medicare Levy and Medicare Levy Surcharge Skill v2.0
12 
13## Section 1 -- Quick reference
14 
15Read this whole section before computing anything.
16 
17| Field | Value |
18|---|---|
19| Country | Australia |
20| Jurisdiction Code | AU |
21| Primary Legislation | Medicare Levy Act 1986 (MLA 1986); A New Tax System (Medicare Levy Surcharge -- Fringe Benefits) Act 1999 |
22| Supporting Legislation | ITAA 1997 Div 61 (Medicare levy); ITAA 1997 s 8C-8G (MLS); Health Insurance Act 1973; Private Health Insurance Act 2007 |
23| Tax Authority | Australian Taxation Office (ATO) |
24| Tax Year | 2024-25 (1 July 2024 -- 30 June 2025) |
25| Standard Medicare Levy Rate | 2% of taxable income |
26| MLS Rates | 1.0% / 1.25% / 1.5% (income-dependent, for those without appropriate PHI) |
27| Return Items | Item M1 (Medicare levy reduction or exemption); Item M2 (Medicare levy surcharge) |
28| Currency | AUD only |
29| Contributor | Open Accountants |
30| Validation Date | April 2026 |
31| Skill Version | 2.0 |
32| Confidence Coverage | Tier 1: standard levy, low-income reduction, surcharge tiers, family thresholds. Tier 2: half-year exemptions, part-year residents, PHI rebate tier selection. Tier 3: Norfolk Island transitional, diplomatic exemptions, prescribed overseas forces. |
33 
34**Low-income reduction thresholds (2024-25):**
35 
36| Category | Lower Threshold (no levy) | Upper Threshold (full levy) | Shade-in Rate |
37|---|---|---|---|
38| Single (general) | $27,222 | $34,027 | 10 cents per $1 |
39| Single (SAPTO-entitled) | $43,020 | $53,775 | 10 cents per $1 |
40| Family (general) | $45,907 (+ $4,216 per child) | N/A | See Section 5 |
41| Family (SAPTO-entitled) | $63,486 (+ $4,216 per child) | N/A | See Section 5 |
42 
43**MLS thresholds (2024-25) -- singles:**
44 
45| Tier | Income for MLS Purposes | MLS Rate |
46|---|---|---|
47| Base | $97,000 or less | 0.0% |
48| Tier 1 | $97,001 -- $113,000 | 1.0% |
49| Tier 2 | $113,001 -- $151,000 | 1.25% |
50| Tier 3 | $151,001+ | 1.5% |
51 
52**MLS thresholds (2024-25) -- families:**
53 
54| Tier | Family Income for MLS | MLS Rate |
55|---|---|---|
56| Base | $194,000 or less | 0.0% |
57| Tier 1 | $194,001 -- $226,000 | 1.0% |
58| Tier 2 | $226,001 -- $302,000 | 1.25% |
59| Tier 3 | $302,001+ | 1.5% |
60 
61The family income threshold increases by $1,500 for each MLS dependent child after the first child.
62 
63**PHI rebate tiers (2024-25):**
64 
65| Tier | Singles Income | Families Income | Rebate (under 65) | Rebate (65-69) | Rebate (70+) |
66|---|---|---|---|---|---|
67| Base | $97,000 or less | $194,000 or less | 24.608% | 28.710% | 32.812% |
68| Tier 1 | $97,001 -- $113,000 | $194,001 -- $226,000 | 16.405% | 20.507% | 24.608% |
69| Tier 2 | $113,001 -- $151,000 | $226,001 -- $302,000 | 8.202% | 12.303% | 16.405% |
70| Tier 3 | $151,001+ | $302,001+ | 0.000% | 0.000% | 0.000% |
71 
72**Conservative defaults:**
73 
74| Ambiguity | Default |
75|---|---|
76| Unknown residency status | Australian resident (levy applies) |
77| Unknown marital status | Single (use individual thresholds) |
78| Unknown PHI status | No appropriate cover (MLS applies if income exceeds threshold) |
79| Unknown SAPTO entitlement | Not entitled (use general thresholds) |
80| Unknown MLS income components | Include only confirmed taxable income |
81 
82---
83 
84## Section 2 -- Required inputs and refusal catalogue
85 
86### Required inputs
87 
88Before computing any Medicare levy figure, you MUST know:
89 
901. Residency status for tax purposes -- Australian resident, foreign resident, or temporary resident
912. Taxable income for the year -- Medicare levy is calculated on taxable income
923. Marital/family status -- single, married/de facto, with or without dependent children
934. Number of dependent children -- affects family threshold
945. Spouse's taxable income -- affects family threshold eligibility and MLS
956. Private health insurance status -- does the client (and family) hold appropriate private patient hospital cover for the full year?
967. Any days of exemption? -- foreign resident days, specific medical condition categories
978. Entitlement to SAPTO? -- seniors and pensioners get higher Medicare levy reduction thresholds
98 
99### Refusal catalogue
100 
101**R-AU-ML-1 -- Diplomatic or prescribed overseas forces exemption.** Trigger: client claims exemption on diplomatic or overseas forces grounds. Message: "Diplomatic and prescribed overseas forces Medicare levy exemptions require verification of eligibility that is outside this skill's scope. Please escalate to a qualified tax agent."
102 
103**R-AU-ML-2 -- Norfolk Island transitional provisions.** Trigger: client is a Norfolk Island resident claiming transitional provisions. Message: "Norfolk Island transitional Medicare levy provisions are outside this skill's scope. Please escalate to a qualified tax agent."
104 
105**R-AU-ML-3 -- Complex partial-year residency with multiple visa changes.** Trigger: client has more than two residency status changes during the income year. Message: "Multiple residency status changes during the year require detailed analysis of each period. Please escalate to a qualified tax agent for pro-rata computation."
106 
107---
108 
109## Section 3 -- Payment pattern library
110 
111This is the deterministic pre-classifier for bank statement entries related to Medicare levy. Match by case-insensitive substring on the counterparty name or transaction description.
112 
113### 3.1 ATO assessment payments (levy is embedded in tax assessment)
114 
115| Pattern | Treatment | Notes |
116|---|---|---|
117| ATO, AUSTRALIAN TAXATION OFFICE | ASSESSMENT COMPONENT | Medicare levy is not paid separately; it is included in the ATO assessment. The levy line appears on the Notice of Assessment. |
118| ATO INTEGRATED CLIENT ACCOUNT | ASSESSMENT COMPONENT | PAYG instalment or tax payment that includes Medicare levy component |
119| REFUND - ATO, TAX REFUND | ASSESSMENT COMPONENT | Refund may include overpaid Medicare levy |
120 
121### 3.2 Private health insurance premium payments (PHI rebate interaction)
122 
123| Pattern | Treatment | Notes |
124|---|---|---|
125| MEDIBANK, MEDIBANK PRIVATE | PHI PREMIUM | Premium reduces MLS exposure; check rebate tier |
126| BUPA, BUPA HI PTY | PHI PREMIUM | Same |
127| HCF, HOSPITALS CONTRIBUTION FUND | PHI PREMIUM | Same |
128| NIB, NIB HEALTH FUNDS | PHI PREMIUM | Same |
129| HBF, HBF HEALTH | PHI PREMIUM | Same |
130| AHSA, AHM, AUSTRALIAN HEALTH | PHI PREMIUM | Same |
131| TEACHERS HEALTH, DEFENCE HEALTH | PHI PREMIUM | Same |
132| FRANK HEALTH, GMHBA | PHI PREMIUM | Same |
133| HEALTH INSURANCE, PRIVATE HOSPITAL | PHI PREMIUM | Generic match -- confirm cover is "appropriate" (excess no more than $750 singles / $1,500 families) |
134 
135### 3.3 Medicare Safety Net and PBS co-payments (not levy-related)
136 
137| Pattern | Treatment | Notes |
138|---|---|---|
139| MEDICARE, SERVICES AUSTRALIA | EXCLUDE from levy calculation | Medicare benefit payment or Safety Net threshold -- not a levy transaction |
140| PBS, PHARMACEUTICAL BENEFITS | EXCLUDE | Co-payment, not levy |
141| BULK BILL, MEDICAL CENTRE | EXCLUDE | Healthcare payment, not levy |
142 
143---
144 
145## Section 4 -- Levy computation rules
146 
147### 4.1 Standard Medicare Levy (Tier 1)
148 
149Legislation: Medicare Levy Act 1986 s 6
150 
151Medicare levy = taxable income x 2%
152 
153The Medicare levy is calculated on taxable income (not gross income, not adjusted taxable income). It is applied automatically by the ATO when the tax return is assessed.
154 
155### 4.2 Low-income reduction -- singles (Tier 1)
156 
157Legislation: Medicare Levy Act 1986 s 7
158 
159If taxable_income <= $27,222: Medicare levy = $0
160 
161If $27,222 < taxable_income <= $34,027: Medicare levy = (taxable_income - $27,222) x 10%
162 
163If taxable_income > $34,027: Medicare levy = taxable_income x 2%
164 
165The shade-in rate of 10% means the levy increases by 10 cents for every dollar earned above the lower threshold, until the reduced levy equals the standard 2% levy (which occurs at the upper threshold).
166 
167For SAPTO-entitled singles: substitute $43,020 for $27,222, and $53,775 for $34,027.
168 
169### 4.3 Low-income reduction -- families (Tier 1)
170 
171Legislation: Medicare Levy Act 1986 s 8
172 
173Family threshold = $45,907 + ($4,216 x number_of_dependent_children)
174 
175For SAPTO-entitled families: Family threshold = $63,486 + ($4,216 x number_of_dependent_children)
176 
177Family income at or below the family threshold: no Medicare levy payable for either spouse. Family income above the family threshold: each spouse pays their individual share, subject to individual reduction rules.
178 
179Family income for Medicare levy purposes = combined taxable income of both spouses + any exempt foreign employment income + any net financial investment loss + reportable super contributions.
180 
181### 4.4 Medicare Levy Surcharge (Tier 1)
182 
183Legislation: ITAA 1997 s 8C-8G
184 
185The MLS is a separate levy on top of the standard 2% Medicare levy. It applies to taxpayers who do NOT hold appropriate private patient hospital cover and whose income exceeds the MLS threshold.
186 
187Income for MLS purposes = taxable income + reportable fringe benefits total + total net investment loss (including net financial investment loss and net rental property loss) + super lump sum (taxed element, untaxed element) - child support paid.
188 
189MLS is pro-rated for each day the client (and/or dependants) do not have appropriate private hospital cover. Appropriate cover means private patient hospital cover with an excess of no more than $750 for singles or $1,500 for families/couples.
190 
191If married/de facto, the family threshold applies regardless of whether the spouse earns income.
192 
193### 4.5 PHI rebate interaction (Tier 1)
194 
195Legislation: Private Health Insurance Act 2007 Part 2-2; ITAA 1997 Div 61
196 
197The PHI rebate and the MLS use the same income tiers but serve opposite purposes. PHI rebate is a government subsidy for holding private health insurance (reduces with higher income). MLS is a penalty for NOT holding private health insurance (increases with higher income).
198 
199Planning note: For clients in Tier 1 or Tier 2 MLS, holding private hospital cover eliminates the MLS AND provides the PHI rebate. The cost of private cover is often less than the MLS, making it financially beneficial.
200 
201---
202 
203## Section 5 -- Exemptions and special categories
204 
205### 5.1 Full exemption categories (Tier 1)
206 
207| Category | Exemption |
208|---|---|
209| Foreign residents (for the full year) | Full exemption from Medicare levy for the entire year |
210| Temporary residents not eligible for Medicare | Full exemption (must hold valid visa and not be enrolled in Medicare) |
211 
212### 5.2 Half or partial exemption categories (Tier 2)
213 
214| Category | Exemption |
215|---|---|
216| Part-year residents | Pro-rata exemption for non-resident days. Flag for reviewer. |
217| Specific medical conditions (Category 1) | Blind persons -- full exemption. Complete Medicare Levy Exemption Statement. |
218| Specific medical conditions (Category 2) | Persons in specified care -- partial or full exemption depending on circumstances. Flag for reviewer. |
219 
220### 5.3 Reciprocal Health Care Agreements (Tier 2)
221 
222Australia has reciprocal health care agreements with several countries (UK, Ireland, New Zealand, Sweden, Netherlands, Belgium, Finland, Italy, Norway, Slovenia, Malta). Residents of these countries visiting Australia may be entitled to Medicare and therefore NOT exempt from the levy. Flag for reviewer to confirm coverage.
223 
224Foreign residents who are NOT covered by a reciprocal agreement and NOT enrolled in Medicare are exempt from the Medicare levy. They must complete item M1 on the tax return.
225 
226---
227 
228## Section 6 -- Completing the tax return
229 
230### 6.1 Item M1 -- Medicare levy reduction or exemption
231 
232Complete M1 if: taxable income is within the low-income shade-in range; you are claiming a full or half exemption; you had a spouse during the year.
233 
234### 6.2 Item M2 -- Medicare levy surcharge
235 
236Complete M2 if: you (or your spouse/dependants) did not have appropriate private hospital cover for any day during the year; your income for MLS purposes exceeds the relevant threshold ($97,000 singles / $194,000 families).
237 
238If the client held appropriate cover for the full year, M2 does not need to be completed (no MLS is payable).
239 
240---
241 
242## Section 7 -- Edge case registry
243 
244### EC1 -- Part-year resident (Tier 2)
245Situation: Client was a foreign resident for 3 months then became an Australian resident for the remaining 9 months.
246Resolution: Medicare levy is calculated on the full year's taxable income, but a pro-rata exemption applies for the non-resident period. The exemption is calculated as: (exempt days / total days in year) x total Medicare levy. Flag for reviewer -- residency determination is complex.
247 
248### EC2 -- Couple where one spouse has PHI and the other does not (Tier 2)
249Situation: Client has private hospital cover but their spouse does not.
250Resolution: The MLS applies to BOTH spouses unless ALL family members (including dependants) hold appropriate cover. If the spouse is not covered, MLS is payable by both on their respective taxable incomes. Flag for reviewer.
251 
252### EC3 -- Client earns just above the low-income threshold (Tier 1)
253Situation: Single client with taxable income of $28,000.
254Resolution: Shade-in applies. Medicare levy = ($28,000 - $27,222) x 10% = $77.80. This is less than the full 2% levy of $560.00.
255 
256### EC4 -- Client has net investment losses inflating MLS income (Tier 2)
257Situation: Client's taxable income is $90,000 but has a net rental property loss of $15,000 (deducted from taxable income). Income for MLS purposes = $90,000 + $15,000 = $105,000.
258Resolution: Even though taxable income is below $97,000, income for MLS purposes exceeds $97,000 and MLS applies at 1.0% if no private hospital cover is held. Flag for reviewer -- confirm MLS income calculation.
259 
260### EC5 -- SAPTO-entitled pensioner with low income (Tier 1)
261Situation: Pensioner aged 68, taxable income $45,000, entitled to SAPTO.
262Resolution: SAPTO singles threshold is $43,020 (lower) and $53,775 (upper). At $45,000, the shade-in applies: ($45,000 - $43,020) x 10% = $198.00. Full 2% levy would be $900.00. The reduced amount of $198.00 applies.
263 
264### EC6 -- Family with 4 dependent children (Tier 1)
265Situation: Family with 4 dependent children, combined family income $55,000.
266Resolution: Family threshold = $45,907 + ($4,216 x 4) = $62,771. Family income of $55,000 is below the threshold. No Medicare levy payable.
267 
268### EC7 -- MLS with private hospital cover held for part of year (Tier 2)
269Situation: Client held appropriate PHI for 200 days of the year, no cover for 165 days. Single, income for MLS purposes $120,000.
270Resolution: MLS is pro-rated for the 165 uncovered days. MLS = $120,000 x 1.25% x (165/365) = $678.08 (approximately). Flag for reviewer -- confirm exact uncovered days.
271 
272---
273 
274## Section 8 -- Reviewer escalation protocol
275 
276When a Tier 2 situation is identified:
277 
278```
279REVIEWER FLAG
280Tier: T2
281Client: [name]
282Situation: [description]
283Issue: [what is ambiguous]
284Options: [possible treatments]
285Recommended: [most likely correct treatment and why]
286Action Required: Qualified practitioner must confirm before advising client.
287```
288 
289When a Tier 3 situation is identified:
290 
291```
292ESCALATION REQUIRED
293Tier: T3
294Client: [name]
295Situation: [description]
296Issue: [outside skill scope]
297Action Required: Do not advise. Refer to qualified practitioner. Document gap.
298```
299 
300---
301 
302## Section 9 -- Test suite
303 
304### Test 1 -- Standard Medicare levy, no reduction
305Input: Single, Australian resident, taxable income $80,000. Has PHI.
306Expected output: Medicare levy = $80,000 x 2% = $1,600.00. No MLS (has PHI).
307 
308### Test 2 -- Low-income reduction (single)
309Input: Single, taxable income $30,000. No spouse.
310Expected output: Shade-in applies. Levy = ($30,000 - $27,222) x 10% = $277.80.
311 
312### Test 3 -- Below low-income threshold
313Input: Single, taxable income $25,000.
314Expected output: Medicare levy = $0. Below $27,222 lower threshold.
315 
316### Test 4 -- MLS Tier 1 (single, no PHI)
317Input: Single, income for MLS purposes $105,000. No private hospital cover.
318Expected output: Medicare levy = $105,000 x 2% = $2,100.00. MLS = $105,000 x 1.0% = $1,050.00. Total Medicare-related charges = $3,150.00.
319 
320### Test 5 -- MLS Tier 3 (single, no PHI)
321Input: Single, income for MLS purposes $200,000. No private hospital cover.
322Expected output: Medicare levy = $200,000 x 2% = $4,000.00. MLS = $200,000 x 1.5% = $3,000.00. Total = $7,000.00.
323 
324### Test 6 -- Family below family threshold
325Input: Family, 2 dependent children, combined family income $50,000.
326Expected output: Family threshold = $45,907 + ($4,216 x 2) = $54,339. Family income $50,000 < $54,339. No Medicare levy payable.
327 
328### Test 7 -- Foreign resident full exemption
329Input: Foreign resident for the full year. Taxable income $60,000 (Australian-sourced).
330Expected output: Full Medicare levy exemption. Levy = $0. Must complete item M1.
331 
332### Test 8 -- MLS family threshold with children
333Input: Family, 3 children, combined income for MLS purposes $200,000. No PHI.
334Expected output: Family MLS threshold = $194,000 + ($1,500 x 2 children after the first) = $197,000. Income $200,000 > $197,000. MLS Tier 1 = 1.0% applies.
335 
336---
337 
338## Section 10 -- Prohibitions and disclaimer
339 
340### Prohibitions
341 
342- NEVER apply the Medicare levy to a confirmed full-year foreign resident who is not enrolled in Medicare
343- NEVER ignore the MLS income definition -- it is NOT the same as taxable income (includes reportable fringe benefits and net investment losses)
344- NEVER tell a client they avoid MLS simply because their taxable income is below $97,000 -- check income for MLS purposes
345- NEVER apply the general low-income threshold ($27,222) to a SAPTO-entitled senior -- use the SAPTO thresholds ($43,020 / $53,775)
346- NEVER assume PHI eliminates MLS unless the cover is "appropriate" (private patient hospital cover with excess no more than $750 singles / $1,500 families)
347- NEVER present Medicare levy figures as definitive -- always label as estimated and direct client to their ATO assessment for confirmation
348- NEVER advise on diplomatic or prescribed overseas forces exemptions -- escalate
349- NEVER confuse the Medicare levy (2% on taxable income) with the Medicare Levy Surcharge (1%-1.5% on MLS income for those without PHI) -- they are separate charges
350 
351### Disclaimer
352 
353This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, CA, tax agent, or equivalent licensed practitioner in your jurisdiction) before filing or acting upon.
354 
355The most up-to-date, verified version of this skill is maintained at [openaccountants.com](https://openaccountants.com). Log in to access the latest version, request a professional review from a licensed accountant, and track updates as tax law changes.
356 

Run this skill, then get an accountant to check it

After running the full skill pack in Claude, sign up and upload your worksheet. We'll connect you with a trusted accountant in our network who can review your numbers before you file.

Sign up to submit a review

Discussions

No discussions yet. Verified accountants can post questions about this skill.

Quality

Q3: AI-drafted

AI-generated with structure and citations. Not independently verified.

Needs deep research against tax authority websites to reach Q2.

Accountant Review

Unverified
0/36

About

Use this skill whenever asked about the Australian Medicare Levy, Medicare Levy Surcharge (MLS), low-income reduction thresholds, family thresholds, surcharge tiers, private health insurance (PHI) rebate interaction, or Medicare levy exemptions. Trigger on phrases like "Medicare levy", "Medicare surcharge", "MLS", "do I pay Medicare levy", "low income Medicare", "Medicare levy reduction", "Medicare levy exemption", "private health insurance rebate", "PHI rebate", "M1", "M2", or any question about Medicare-related levies on an Australian tax return. ALWAYS read this skill before touching any Medicare levy work.

AUty-2025

3 of 6 in the AU workflow: