Australia's healthcare system, Medicare, is funded through a tax called the Medicare levy. This levy is an additional charge on top of your standard income tax and is calculated at 2% of your taxable income. However, as an international student or temporary resident, you may be eligible for an exemption from this levy under certain circumstances.
What is the Medicare Levy?
The Medicare levy is a compulsory tax that helps fund Australia's public health system, Medicare. The levy is calculated as 2% of your taxable income and is typically included in the pay-as-you-go (PAYG) tax withheld from your salary or wages by your employer. When you lodge your income tax return, the Australian Taxation Office (ATO) calculates your Medicare levy based on your taxable income for the year.
Eligibility for Medicare Levy Exemption
International students and temporary residents in Australia may be eligible for a full exemption from the Medicare levy. To qualify, you must:
Not be entitled to Medicare benefits.
Hold a Medicare Entitlement Statement (MES) for the period you are claiming the exemption.
Have no dependants, or if you do, all dependants (including your spouse) must also be in a Medicare levy exemption category.
Claiming a Medicare Levy Exemption
To claim an exemption, you need to apply for a Medicare Entitlement Statement (MES) from Services Australia. The MES confirms that you were not entitled to Medicare benefits during a specified period. Here’s a step-by-step guide on how to apply for an MES and claim the exemption:
Step 1: Apply for a Medicare Entitlement Statement (MES)
The quickest and easiest way to apply for an MES is online through your myGov account linked to Services Australia. Applications for an MES open on 1 June each year. It’s crucial to apply for an MES as soon as possible to ensure you can lodge your tax return correctly and on time.
Step 2: Wait for Processing
Processing your MES application can take up to 8 weeks. It’s important to wait until you receive your MES before lodging your tax return to avoid any errors or delays.
Step 3: Lodge Your Tax Return
When lodging your tax return, you must indicate the exemption category for the Medicare levy. If you are using myTax, the online tax return service provided by the ATO, follow these steps:
Enter the number of days you qualified for the full 2% levy exemption. For example, if you were not entitled to Medicare benefits for the entire financial year, enter '366' days.
Answer 'Yes' to the question: "Were you a temporary resident for Medicare purposes and have a Medicare entitlement statement from Services Australia?"
Example Scenario: Angelica's Exemption Claim
To illustrate, let’s consider Angelica, an international student from Malaysia on a Student visa (subclass 500) in Australia during the 2023–24 financial year. Angelica was not entitled to Medicare benefits and had no dependants. She wants to claim an exemption from the Medicare levy.
Angelica applies for a Medicare Entitlement Statement (MES) from Services Australia as she wasn't entitled to Medicare benefits during the year.
After up to 8 weeks, Angelica receives her MES, confirming she was not entitled to Medicare benefits from 1 July 2023 to 30 June 2024.
Angelica keeps a copy of the MES for her records and sends a copy to Tax Agent.
When completing her tax return using Tax Agent, Tax Agent claims this in her tax return.
Understanding the Medicare levy and how to claim an exemption can significantly impact your tax obligations as an international student or temporary resident in Australia. By applying for a Medicare Entitlement Statement and correctly lodging your tax return, you can ensure you are not unfairly charged the Medicare levy. For more detailed advice tailored to your specific circumstances, consider consulting with a tax professional at Precent Tax & Accounting Services.