Key Documents
The Australian Government is consulting on a measure from the 2023–24 Budget to exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024.
This measure will ensure low‑income taxpayers do not pay higher amounts of the Medicare levy as a result of receiving an eligible lump sum payment. For example, as compensation for underpaid wages.
To qualify for relief, taxpayers must:
- be eligible for a reduction in the Medicare levy in the 2 most recent years, or income year, to which the lump sum accrues
- satisfy the eligibility requirements of the existing lump sum payment in arrears tax offset, including that a lump sum accounts for at least 10 per cent of the taxpayer’s income in the year of receipt.
Summary of consultation process outcomes
The government announced in the 2023–24 Budget on 9 May 2023 that it would exempt eligible lump sums payments in arrears from the Medicare levy from 1 July 2024.
The exemption was in response to recommendations from the Senate Economic References Committee’s report ‘Systematic, sustained and shameful: Unlawful underpayment of employee’s remuneration.’
This measure was included in Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, introduced into parliament on 5 June and enacted on 29 November 2024.
Consultation on the draft legislation was conducted between 5 to 23 April 2024. Two submissions were received.
Submissions can be viewed below.
Summary of feedback
Stakeholders were supportive of the reform and did not propose any changes to the draft legislation.
One stakeholder noted that affected taxpayers may not realise the benefits of the exemption if their employer did not correctly report the lump sum payment in their income statement. Treasury has passed this feedback to the Australian Tax Office (ATO).
It was also noted that the offset may marginally overcompensate low‑income taxpayers in some circumstances. The design of the offset is consistent with the operation of the existing lump sum payments in arrears and Medicare levy surcharge lump sum payment in arrears tax offsets and avoids unnecessary additional complexity.
Questions
Questions on the consultation process for this measure can be forwarded to medicarelevylumpsums@treasury.gov.au.
Thank you to all participants in the consultation process.