How Arborists Can Understand Medicare Levy Reductions and Exemptions
Published on September 30, 2026
How Arborists Can Understand Medicare Levy Reductions and Exemptions starts with knowing the difference between a Medicare levy reduction and a Medicare levy exemption. Most Australian taxpayers pay the Medicare levy at 2% of taxable income, but the amount can be lower when annual taxable income falls within certain income thresholds or an exemption applies. Your position depends on taxable income, family circumstances, residency and access to Medicare benefits. It is separate from the Medicare Levy Surcharge (MLS), which can apply to higher-income taxpayers without an appropriate level of private patient hospital cover.
Medicare Levy Rates for Arborists
For the 2025–26 financial year, the Medicare levy is generally 2% of taxable income for most taxpayers. A single person who is not eligible for the Seniors and Pensioners Tax Offset (SAPTO) generally pays no standard levy when taxable income is $28,011 or less, while a reduced Medicare levy can apply between $28,012 and $35,013.
For 2025–26, the family income threshold starts at $47,238 and increases by $4,338 for each dependent child or student. If you are entitled to the Seniors and Pensioners Tax Offset (SAPTO), the family threshold starts at $61,623. Your family taxable income generally includes the combined taxable income of you and your spouse.
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Irregular Arborist Income Can Change the Result
Arborists often have income that varies because of storm work, seasonal demand and larger tree removal jobs. A quiet period does not always mean annual taxable income will remain below the threshold if stronger work later in the financial year lifts total income. For sole traders, taxable income is not the same as turnover. Allowable business expenses can reduce taxable profit, while other income can increase it. Treasury’s 2025–26 Tax Expenditures and Insights Statement reported that around 4.9 million people benefited from Medicare levy low-income relief in 2022–23, with 99% of the benefit going to tax filers below median taxable income.
Example: An arborist business may receive $120,000 in customer payments, but taxable income can be lower after allowable business costs and other tax adjustments. The reduction is based on taxable income, not gross receipts.
Medicare Levy Exemptions That May Apply
Medicare levy exemptions are different from income-based reductions. An exemption may apply if you meet specific medical requirements set by the ATO, were a foreign resident for tax purposes for part of the year or were not entitled to Medicare benefits for a period. A Medicare levy exemption can be full or half and may apply for all or part of the financial year, depending on your circumstances and eligible days. If you are claiming an exemption because you were not entitled to Medicare benefits, you need a Medicare Entitlement Statement (MES) for the relevant period, and not having a Medicare card does not itself mean you are exempt.
Private Health Insurance and the Medicare Levy Surcharge
Private health insurance does not usually remove the standard Medicare levy. Private hospital insurance can affect whether you may have to pay the Medicare Levy Surcharge, which can apply when your income for MLS purposes is above the surcharge threshold and you, your spouse or your dependants do not have an appropriate level of private patient hospital cover.
Private hospital cover and the private health insurance rebate are separate from the standard levy reduction. Basic hospital cover only counts for MLS purposes if it meets the ATO requirements for an appropriate level of private patient hospital cover from a registered health insurer. Whether you pay MLS depends on your income for MLS purposes, family tiers and personal circumstances.
Example: An arborist with private health cover can still pay the Medicare levy. Hospital insurance may help avoid paying MLS if it meets the required conditions, but it does not generally remove the standard levy.
Family Income Can Affect What You Pay
Family rules matter because the Medicare levy reduction and MLS use different income tests. For the Medicare levy reduction, family taxable income generally includes the combined taxable income of you and your spouse. For MLS purposes, the ATO uses income for MLS purposes rather than ordinary combined income, together with the relevant family threshold. Threshold increases can apply for eligible dependants. A family should not rely only on one person’s income when estimating tax because personal circumstances and a spouse’s income can change the result.
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Checking Your Medicare Levy Position Before Tax Time
Start by confirming taxable income, then check whether a Medicare levy reduction applies before reviewing any exemption. After that, consider whether the Medicare Levy Surcharge may apply if your income is above the surcharge threshold and you do not have the appropriate level of hospital cover. Before lodging your tax return:
Finalise business income, wages and allowable deductions.
Confirm annual taxable income and the relevant income thresholds.
Review the family income threshold if you have a spouse or dependants.
Check whether Medicare levy exemptions or MLS rules may apply.
Review private hospital cover and supporting records before lodging.
How ACT Tax Group Can Help with Medicare Levy Reductions and Exemptions
We understand that arborists already manage crews, equipment, changing workloads, late payments and Australian Taxation Office deadlines. Our friendly, IPA-certified team can review your taxable income, personal circumstances, family details, private health cover and Medicare eligibility, then explain whether a Medicare levy reduction or exemption may apply.
We can also help you understand whether you may need to pay MLS, how private hospital insurance affects your tax position and what records should be kept. Book a consultation with ACT Tax Group to review your Medicare levy position before lodging your tax return.
Frequently Asked Questions
How Much Is Medicare Levy for Most Australian Taxpayers?
The Medicare levy is generally 2% of taxable income and helps fund Medicare and Australia’s public health system. How much tax you pay depends on your income and personal circumstances, including whether a Medicare levy reduction or exemption applies. Private health insurance does not generally help you avoid the Medicare levy itself.
When Do You Have to Pay the Medicare Levy Surcharge?
You may have to pay the Medicare Levy Surcharge (MLS) as additional tax if your income for Medicare levy surcharge purposes exceeds the relevant threshold and you, your spouse or a dependant child do not have appropriate private patient hospital cover. The Australian Government’s Medicare levy surcharge calculator can help estimate whether you may pay the MLS. Cover offered by health funds must meet the ATO requirements to count for MLS purposes.
Lukasz Klekowski
