Lump sum payment in arrears to be exempt from Medicare levy
Individuals who receive an eligible lump sum payment in arrears after 1 July 2024 may not have to pay Medicare levy on that amount.
This measure ensures that if you would have otherwise not been liable to pay Medicare levy, or a reduced amount, you are not penalised for receiving a lump sum payment in arrears.
What is a lump sum payment in arrears?
The characteristics of a lump sum payment in arrears is that the amount received relates to:
- a previous income year, and
- the payment of an owed or previously underpaid amount (eg underpayment of wages or back payment of workers' compensation).
What is the offset or rebate?
An individual is entitled to a tax offset or a rebate of tax for a lump sum payment in arrears if:
- the amount received would account for at least 10% of taxable income for the income year if it is excluded from other income, and
- the lump sum payment in arrears has otherwise resulted in an increase in tax compared to the amount you would have paid if you received it in the appropriate income year.
The current offsets already available to you in this situation are the income arrears rebate and the Medicare levy surcharge lump sum arrears offset.
Do I automatically get the exemption from Medicare levy?
The short answer to this question at this early stage of proceedings is no. However, the announcement is yet to begin its passage through the parliamentary process and therefore is subject to change.
As per the 2023 Federal Budget announcement, you will only receive the exemption from Medicare levy if you were eligible for a reduction or outright exemption from Medicare levy in the 2 most recent income years to which the lump sum accrues.
Most individuals will have a reduced Medicare levy if their income is below the low-income threshold.
If you need to know more information in relation to this announcement, please contact our office.
