Quick Checklist: Tax Offsets and Medicare Levy for New Arrivals

When you arrive in Australia, the tax system can feel overwhelming. Tax offsets and the Medicare levy are two separate things that affect how much tax you pay. Here's what you need to do:

  • Understand what tax offsets are and which ones you might claim
  • Check if you're eligible for the Medicare levy and Medicare levy surcharge
  • Find out if you qualify for the low-income tax offset
  • Learn how to claim offsets when you file your tax return
  • Know the Medicare levy exemptions and when they apply

What Are Tax Offsets and How Do They Work?

A tax offset is a dollar-for-dollar reduction in the tax you owe. If you owe $5,000 in tax and you claim a $1,500 offset, you only pay $3,500. This is different from a tax deduction, which reduces your taxable income before tax is calculated.

Tax offsets are more valuable than deductions because they cut your actual tax bill directly. The Australian Taxation Office (ATO) recognises several offsets for residents and new arrivals. Some are automatic, others you must claim.

New arrivals often qualify for the low-income tax offset (LITO) if they earn below a certain threshold. As of the 2026 tax year, LITO provides up to $705 for people earning less than $18,200 per year. If you earn more, the offset reduces gradually until it disappears at around $66,667.

Other common offsets include the senior Australians and pensioners tax offset (SAPTO), the dependant parent tax offset, and the spouse tax offset. Your eligibility depends on your age, income, and family circumstances.

Understanding the Medicare Levy

The Medicare levy is a compulsory tax on Australian residents that funds the public healthcare system. It's set at 2% of your taxable income, with no minimum income threshold. If you earn $50,000, you pay $1,000 in Medicare levy.

Not everyone pays the levy. Permanent residents and Australian citizens pay it. Temporary visa holders (students, skilled temporary, working holiday) do not pay Medicare levy. Instead, they must hold private health insurance or Overseas Student Health Cover (OSHC).

The levy is collected through the tax system. When you file your tax return, the ATO calculates it automatically based on your income. You cannot avoid it if you're a resident.

There are some exemptions. If you earn below the threshold (around $21,980 for single people in 2026), you don't pay the levy. If you're on certain government payments or have a valid exemption certificate, you may be excused.

Medicare Levy Surcharge: What New Arrivals Need to Know

The Medicare levy surcharge is an extra tax on top of the standard 2% levy. It applies to high-income earners who don't have private health insurance. This surcharge encourages people to take out private cover.

If you're a single person earning over $180,000 (as of 2026) and you don't have private hospital cover, you pay an extra 1% to 1.5% on top of the standard 2% levy. For families, the threshold is higher.

New arrivals who are permanent residents or citizens and earn above these thresholds must either buy private health insurance or pay the surcharge. The surcharge is calculated on your taxable income and collected through the tax system.

If you're a temporary visa holder, you don't pay the Medicare levy or surcharge. You're required to have private health insurance as a condition of your visa.

Claiming Tax Offsets on Your Tax Return

To claim a tax offset, you must file a tax return with the ATO. You can do this online using myTax, through a tax agent, or by paper form.

The process is straightforward. When you complete your return, you'll be asked about your circumstances. The ATO will automatically calculate some offsets like LITO. For others, you'll need to provide supporting documents.

Here's what you need to do:

  1. Gather your income documents: payslips, bank statements, investment statements, and any other income records.
  2. Collect proof of eligible expenses if you're claiming deductions (work-related expenses, donations, medical costs).
  3. Log into myTax or contact a tax agent to start your return.
  4. Answer all questions about your income, deductions, and personal circumstances.
  5. Review the calculated offsets and check they're correct.
  6. Submit your return before the deadline (usually 31 October each year).

If you're unsure about which offsets you qualify for, the ATO website has a tax offset finder tool. You can also call the ATO on 1300 366 062 or visit an ATO office in person.

New arrivals who worked part of the year may be eligible for a refund even if they didn't earn much. This happens when your offsets exceed your tax liability. The ATO will refund the difference to your Australian bank account.

Medicare Levy Exemptions and Deferrals

You may be exempt from the Medicare levy in certain situations. If you're a temporary resident on a student visa, you don't pay the levy. If you're on a working holiday visa, you don't pay it either.

If you're a permanent resident but have just arrived, you may qualify for a deferral. Some new arrivals can defer payment for up to 12 months while they establish themselves. You must apply for this through the ATO.

Other exemptions include:

  • Aboriginal and Torres Strait Islander people who meet certain criteria
  • People on certain government payments (JobSeeker, Disability Support Pension)
  • People with a valid exemption certificate issued by the ATO
  • People earning below the threshold for their circumstances

If you think you're exempt, contact the ATO to apply. You'll need to provide evidence of your circumstances. Processing typically takes 28 days.

Low-Income Tax Offset: How to Qualify

The low-income tax offset (LITO) is the most common offset for new arrivals. It's designed to help people on lower incomes keep more of what they earn.

To qualify, you must be an Australian resident for tax purposes. New arrivals are usually considered residents from the day they arrive if they intend to stay permanently. Students and temporary workers may not qualify.

The amount you get depends on your income. If you earn less than $18,200, you get the full offset of $705. Between $18,200 and $66,667, the offset reduces by 1.5 cents for every dollar you earn above $18,200. Above $66,667, you get nothing.

You don't need to do anything to claim LITO. The ATO calculates it automatically when you file your tax return. If you're entitled to it, it will reduce your tax bill or increase your refund.

Some new arrivals earn so little that they don't need to file a tax return. If you earned less than $18,200 and had no other income, you may not be required to lodge. However, if tax was withheld from your pay, you should still file to get a refund.

Sources

For more information about tax offsets and the Medicare levy, visit these official Australian government sources:

Frequently Asked Questions

Do I pay Medicare levy if I'm on a student visa?

No. Student visa holders don't pay Medicare levy. You must have private health insurance or Overseas Student Health Cover (OSHC) instead, which is usually arranged by your education provider.

What's the difference between a tax offset and a tax deduction?

A tax offset reduces your actual tax bill dollar-for-dollar. A tax deduction reduces your taxable income before tax is calculated. Offsets are more valuable because they cut your final tax amount directly.

How much is the Medicare levy surcharge if I don't have private health insurance?

If you're a single person earning over $180,000 (as of 2026) without private hospital cover, you pay an extra 1% to 1.5% on top of the standard 2% Medicare levy. The threshold is higher for families.

Can I claim the low-income tax offset if I'm a new arrival?

Yes, if you're a permanent resident or citizen and earn below $66,667. The ATO automatically calculates it when you file your tax return. You don't need to do anything to claim it.

This is general information only. It is not legal, migration, financial, tax, medical, or professional advice. Always check official sources before acting.