What Is a Medicare Levy Exemption?

A Medicare levy exemption is a feature of Australia’s universal healthcare program which frees certain taxpayers from the requirement to pay the tax that supports the program. In addition to low-income taxpayers, those who are not eligible for Medicare also may be exempted from paying the levy. Considering the overall participation of Australians in Medicare, the population of exempted taxpayers is relatively small.

Australia’s universal health care system was introduced in 1975 under the name Medibank. Its name was changed to Medicare in 1984, and it currently operates as a hybrid of private and public health care. Totally subsidized care is available to participants in public hospitals, and partially subsidized care is provided by doctors in their offices and clinics, as well as by private hospitals. Funding for the original Medibank program initially was provided from Australia’s General Fund, but in 1976 a 2.5% tax – or “levy” – was enacted to support the program. An exemption for low-income taxpayers was included in the legislation.

In 2011, the Medicare levy was 1.5% of income. Higher-income taxpayers with insufficient hospitalization insurance may be liable for an additional 1.0% levy. This additional tax is specifically intended to encourage taxpayers to purchase private insurance and reduce the burden on Medicare.

Low-income taxpayers may qualify for a full or partial Medicare levy exemption. This determination is made by the Australian taxing authority based on the information the taxpayer provides on his or her income tax return. In addition to the exemption for low-income taxpayers, there are three other reasons a taxpayer may qualify for a Medicare levy exemption: medical conditions, ineligibility for Medicare due to immigration status, and non-residency.

Australian taxpayers with certain medical conditions are often fully or partially exempted from the Medicare levy, depending on their dependents’ Medicare eligibility and exemption status. Another group generally exempt from the Medicare levy is immigrants who have work visas in Australia but have been declared specifically ineligible for Medicare. Specific ineligibility certification is required for taxpayers in this group, and must be presented with the tax return, to qualify for the exemption.

The final group of exempted taxpayers is foreign residents and residents of Norfolk Island, a semi-autonomous island near Australia which has its own health care program. Residents of some foreign countries, including the United Kingdom, Northern Ireland, Italy, Malta, Sweden, the Netherlands, Finland and Norway, are not eligible for a Medicare levy exemption because Australia has reciprocal agreements with those countries with respect to health care. In general, a taxpayer’s eligibility for exemption from the Medicare levy must be recertified annually.