Medicare levy to increase from 2.0% to 2.5%

An increase to the Medicare levy has been announced in federal parliament on 17 August 2017. The levy for individuals will increase from 2.0% to 2.5% effective 1 July 2019. All individuals above the Medicare levy threshold will have an increase in their overall tax liability.

The additional Medicare levy for most individuals is a flat rate of tax on every dollar earned. Therefore, if an individual earns an additional $10,000 in income after the Medicare rate change, their tax liability increases by $50.

Parallel to this change in Medicare levy for the 2019/20 income year, the temporary Budget repair levy will end in the 2016/17 income year. This allows an opportunity for high income-earning individuals to transition income to the two income years where the highest marginal rate will be at its lowest.

As at the introduction of legislation on 17 August 2017, here is the top marginal rates of tax including all levies:

2013/14 income year 46.50%
2014/15 to 2016/17 income year 49%
2017/18 to 2018/19 income year 47%
2019/20 income year and beyond 47.50%

Please note: In the previous two Federal Budgets there have been no announcement that the top marginal rate of individual tax will stay at 45% beyond 2017/18.

However, an opportunity exists to reduce an overall liability where high-earning individuals are preparing for large income events such as capital gains or employee share scheme receipts. By focusing those income receipts (where achievable) into the 2017/18 and 2018/19 income years, the overall rate of tax will be marginally lower than other years.

The same will also apply for fringe benefits tax and other areas where the top levy is applied.

Increase of Medicare levy low-income thresholds

On the other end of the scale, an increase in the levy will be offset by an increase in the low-income thresholds for Medicare levy. As such, for the 2016/17 income year:

  • the singles threshold will increase to $21,665
  • the family threshold will increase to $36,541 plus $3,356 for each dependent child or student
  • the single seniors and pensioners threshold will increase to $24,244, and
  • the family threshold for seniors and pensioners will increase to $47,670 plus $3,356 for each dependent child or student.

It is expected that further increases will be announced as we get closer to the change in the overall rate.

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