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  • Applying a foreign income tax offset against Medicare levy and Medicare levy surcharge

    Your foreign income tax offset (FITO) is first applied against your tax payable for an income year. If any FITO remains after that, you can use it to reduce your liability to pay Medicare levy.

    Then, if there is any further remaining FITO, you can reduce any liability to pay the Medicare levy surcharge for that income year.

    This applies regardless of whether Australia has a tax treaty with the foreign country in which the tax was paid.

    The law changed to allow this. It applies for 2008–09 and later years. Our systems have applied the FITO against the Medicare levy and Medicare levy surcharge in all individual tax returns lodged or amended from July 2012.

    See also:

    How this differs from the previous law

    Previously, your FITO could only be applied against your liability to pay Medicare levy and Medicare levy surcharge if the FITO arose from paying tax in a country with which Australia had a tax treaty.

    This view was confirmed in ATO Interpretive Decision ATO ID 2011/75 Allowance of credit for tax paid in Papua New Guinea, against Australian tax payable, including the Medicare Levy, published 23 September 2011.

    Paying Medicare

    Paying tax in a foreign country does not exempt you from the Medicare levy. However, you can apply any excess FITO against your Medicare liabilities. This may reduce or eliminate the amount of Medicare payable. The excess is the amount remaining after first applying the FITO against your tax payable.

    See also:

      Last modified: 01 Jul 2020QC 25799