9th June, 2017 | 3 minutes
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How might the Medicare Levy Surcharge (MLS) affect me?

by Danielle O'Reilly
Health Geek

No-one likes paying tax. So if you were told there was a way that you could reduce your tax bill and potentially save money, you’d leap on it, right? Well, guess what? There is. And it’s called health insurance.

Say what? How can paying for health insurance reduce your tax bill and save you money? By avoiding the Medicare Levy Surcharge (MLS), that’s how.

What is the Medicare Levy Surcharge (MLS)?

The MLS is a levy (on top of the 2% Medicare Levy we all have to pay) that some Australian taxpayers have to pay each year. It was introduced to encourage more Australians to take out private hospital cover, and thus reduce the strain on the Medicare system.

Aimed at encouraging Australians to take out private hospital cover, the MLS is an additional tax applicable to Australians who earn above specific income thresholds, and don’t have private hospital cover.

It’s important to note: The levy only affects you if you earn over $90,000 per year (or $180,000 for a family). The more you earn, the higher the levy gets. It means that, for some people, the levy is actually more expensive than taking out a basic level of hospital cover.

What counts towards your income?

When the taxman is assessing you to see if you fit into one of the MLS tiers, it’s not just your take-home salary that counts towards your income. According to the ATO, your income for MLS purposes is your taxable income plus:

  • reportable fringe benefits
  • reportable superannuation contributions
  • your net investment loss
  • the amount on which family trust distribution tax has been paid

If you need clarification on this, it’s probably best to speak to your accountant.

Example: Emma avoids the MLS

Emma is a successful lawyer on a tidy income of $150,000 per year. This impressive figure puts her in the top tier for the MLS, which means that without health insurance she would have to pay the government an extra 1.5% in tax each year. This adds $2,250 to her tax bill.

For that amount, Emma could take out a basic level of hospital cover (heck, she could even splash out and get a comprehensive level of cover) and still have enough change left over to treat herself to a holiday.

Even for people in Tier 1 ($90,001–$105,000), it can still be more viable to have health cover than to pay the MLS. And, not only are you potentially avoiding a bigger tax bill, but you’re gaining the peace of mind that you’re covered in case you need medical treatment.

When you don’t need to worry about the MLS

If, like the average Australian, your wage is $90,000 or less, then you don’t need to worry about the MLS. It won’t be a line item on your tax return.

But that doesn’t mean that you shouldn’t consider health insurance. As we’ve said before, health insurance gives you reassurance that money can’t buy.

Learn more about the Medicare Levy Surcharge

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iSelect does not compare all products in the market. Not all products are available at all times. Any advice provided in this content is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice we give you, having regard to your personal situation, before acting on our advice or purchasing any product.

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