If your Medicare levy surcharge (MLS) looks incorrect, it's often because income for surcharge purposes is used to decide which MLS rate applies, not as the amount the surcharge is charged on. This article explains how the surcharge is worked out and what to do if your Australian Taxation Office (ATO) notice of assessment shows something different.
Income for surcharge purposes
Income for surcharge purposes is used to determine your liability for the MLS. As outlined in Section 995.1 of the Income Tax Assessment Act 1997 (ITAA 97), it's calculated as the total of:
An individual's taxable income, including the net amount on which family trust distribution tax has been paid.
An individual's reportable fringe benefits, as reported on your payment summary.
An individual's total net investment losses, including both net financial investment losses and net rental property losses.
An individual's reportable super contributions, including reportable employer super contributions and deductible personal super contributions.
How the surcharge amount is calculated
The amount of MLS you pay is calculated in accordance with:
Section 8B of the Medicare Levy Act 1986, which states that the percentage for the relevant tier, as determined by the income for surcharge purposes amount, is imposed on the person's taxable income.
Section 10 of A New Tax System (Medicare Levy Surcharge – Fringe Benefits) Act 1999, which states that the same percentage is imposed on the amount of reportable fringe benefits.
📌Note: The MLS isn't calculated on the amount of income for surcharge purposes. This amount is only used to determine your liability for the MLS.
You can find more information on the ATO website in the following pages:
Income for surcharge purposes, including thresholds and rates.
How much MLS you will pay, in the ATO's paying the surcharge page.
Notice of assessment differences
Our Development team has confirmed that the ATO has previously acknowledged that some notices of assessment may incorrectly reference the MLS calculation. No timeframe for a fix has been provided.
Because this relates to the information on your ATO notice of assessment, you need to contact the ATO directly for any further clarification about the calculation or the assessment outcome.