The Medicare levy is a 2% tax applied to the taxable income of Australian residents to help fund the Medicare healthcare system. It is collected alongside income tax and appears as a separate line on your tax assessment. For most Australian residents, it is simply part of their tax obligation and they do not need to think about it separately.
For working holiday makers, the situation is different. If you are not eligible for Medicare, which is the case for most working holiday visa holders whose home country does not have a Reciprocal Health Care Agreement with Australia, you are entitled to an exemption from the Medicare levy. Paying it when you are not entitled to Medicare would mean contributing to a service you cannot access.
How to claim the Medicare levy exemption
The exemption is not automatic. You need to apply for a Medicare Levy Exemption Certification through the ATO before you can claim it on your tax return. The certification confirms your visa status and your ineligibility for Medicare. Once you have it, you include it with your tax return lodgment and the 2% levy is not applied to your income.
If you lodge your return without claiming the exemption when you are entitled to it, you will pay an unnecessary 2% on your taxable income. On a year's earnings of $30,000, that is $600 that should be in your account instead of with the ATO.
What if your country has a Medicare agreement with Australia
If you are from the UK, Ireland, New Zealand, or another country with a Reciprocal Health Care Agreement, your situation is different. You may be entitled to some Medicare benefits and may not be fully exempt from the levy. The rules are more nuanced in this case and it is worth getting specific advice based on your country of origin and your enrolment status.
Including the exemption in your return
When you lodge your tax return, there is a section that asks about your Medicare levy status. Make sure this is completed correctly. If you are using a registered tax agent, they will handle this as part of the lodgment process.
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Which countries have a Medicare agreement with Australia?
Australia has Reciprocal Health Care Agreements with several countries, giving their citizens access to some Medicare benefits. Here is the full list.