MLS Income Explained: What Counts Beyond Taxable Income
The ATO uses 'income for MLS purposes' — not just taxable income — adding back fringe benefits, super contributions, and investment losses to determine your surcharge.
In this guide
- 1. What is income for MLS purposes?
- 2. The MLS income formula
- 3. Component 1: Taxable income
- 4. Component 2: Reportable fringe benefits
- 5. Component 3: Reportable super contributions
- 6. Component 4: Net investment losses
- 7. Component 5: Family trust distribution tax
- 8. The calculation trap: what the MLS is actually charged on
- 9. Worked examples
- 10. Where to find each component on your tax return
- 11. How couples and families are assessed
- 12. Common surprises that push you over the threshold
- 13. Frequently asked questions
What is income for MLS purposes?
Most Australians know their taxable income — it's the number at the bottom of their tax return. But the ATO uses a different, broader measure to decide whether you owe the Medicare Levy Surcharge. This measure is called income for MLS purposes, and it captures income streams that taxable income misses.
The reason is straightforward: without this broader test, higher-income earners could reduce their taxable income below the MLS threshold through salary sacrifice into super, novated leases, or negative gearing — and avoid the surcharge entirely. The ATO adds these amounts back so the MLS threshold reflects your actual economic income.
Key point: You can have a taxable income of $90,000 — well below the $101,000 threshold — and still owe MLS if your fringe benefits, super contributions, and investment losses push your MLS income above the threshold.
The MLS income formula
Income for MLS purposes
Note: Taxable income excludes any assessable First Home Super Saver (FHSS) released amount. Source: ATO — MLS income thresholds and rates
Each component adds income that your taxable income figure doesn't capture. The sections below explain what each one is, how it gets onto your tax return, and when it actually matters.
Component 1: Taxable income
This is your assessable income minus allowable deductions — the figure at the bottom of your tax return. It includes your salary and wages, interest, dividends, capital gains, rental income (net of deductions), business income, and most other income sources the ATO assesses.
For most PAYG employees with no investments or salary packaging, taxable income is the only component that matters. If your taxable income alone is below $101,000 (singles) or $202,000 (families) and you have none of the other components, you will not owe MLS.
There is one exclusion: if you withdrew money under the First Home Super Saver (FHSS) scheme, the assessable FHSS released amount is removed from your taxable income before the MLS calculation. This prevents a one-off super withdrawal from triggering MLS in the year you access it.
Component 2: Reportable fringe benefits (RFB)
Fringe benefits are non-cash benefits your employer provides as part of your remuneration package. When the total taxable value of your fringe benefits exceeds $2,000 in an FBT year (1 April to 31 March), your employer must report a reportable fringe benefits amount (RFBA) on your income statement.
Common fringe benefits that create an RFBA
- Novated car leases — the most common source. Your employer leases a car on your behalf as part of a salary sacrifice arrangement. The car fringe benefit is assessed at either the statutory formula (20% of the car's value) or operating cost method.
- Living-away-from-home allowances (LAFHA) — paid when you relocate for work and need to maintain a second residence. The taxable value is the full allowance minus any exempt food and accommodation components.
- Employer-paid school fees — if your employer covers private school fees as part of your package, the full amount is a fringe benefit.
- Employer-provided housing — common in mining, remote work, or corporate relocation packages.
Why the amount is “grossed up”
The RFBA on your income statement is not the actual cost of the benefit — it is the grossed-up value, calculated using the lower (type 2) gross-up rate of 1.8868. Grossing up reflects what you would have needed to earn in pre-tax salary to purchase the benefit yourself, at the highest marginal tax rate plus the Medicare levy.
Example: Novated lease gross-up
The $16,981 is what appears on your income statement and gets added to your MLS income — not the $9,000 taxable value.
What this means in dollars
On a $90,000 salary with a $45,000 novated lease
MLS income: $106,981
Your taxable income is below the $101,000 threshold, but the grossed-up fringe benefit pushes your MLS income into Tier 1 — liable for 1% MLS without qualifying hospital cover.
Component 3: Reportable super contributions (RSC)
Reportable super contributions are the sum of two types of contributions:
- Reportable employer super contributions (RESC) — employer contributions above the compulsory Super Guarantee (SG) minimum. The most common source is salary sacrifice into super. If your employer contributes more than the SG rate (currently 12% of ordinary time earnings) as part of your package, the excess is reportable.
- Deductible personal super contributions — if you make personal contributions to your super fund and claim a tax deduction for them (under section 290-150 of the ITAA 1997), those deducted amounts are added back for MLS purposes.
What is NOT reportable
- Compulsory SG contributions — the standard 12% your employer is legally required to pay. These are not reportable and do not affect your MLS income.
- Non-concessional (after-tax) contributions — personal contributions you make from after-tax money without claiming a deduction. These are not reportable and not added to MLS income.
Why salary sacrifice doesn't reduce MLS income
When you salary sacrifice $10,000 into super, your taxable income drops by $10,000 — but your reportable employer super contributions increase by $10,000. The two movements cancel out, leaving your income for MLS purposes unchanged.
Try this scenario
Enter $100,000 taxable income with $10,000 in salary sacrifice to see how MLS income stays the same. Try it with and without the super contributions field.
Test salary sacrifice effectComponent 4: Net investment losses
If your investment expenses exceed your investment income — in other words, if your investments run at a loss — those losses have already reduced your taxable income. The ATO adds them back for MLS purposes. This is a deliberate policy choice: the government doesn't want investment losses (particularly negative gearing) to shield high-income earners from the MLS.
There are two separate categories, and the ATO requires you to calculate each one independently:
Net financial investment loss
When deductions from financial investments (such as interest on margin loans, management fees, or brokerage) exceed investment income (dividends, interest, distributions). Reported at item IT5 on your tax return.
Common scenario: Margin-loan-funded share portfolio where interest costs exceed dividends received.
Net rental property loss
When your total rental property deductions (mortgage interest, depreciation, repairs, insurance, council rates) exceed your rental income. This is what most people know as “negative gearing”. Reported at item IT6 on your tax return.
Common scenario: Investment property where loan interest and depreciation exceed rent.
Important: You cannot offset a rental property loss against a financial investment gain (or vice versa) when calculating your total net investment loss for MLS purposes. If you have a $5,000 rental loss and $3,000 in share dividends, both are treated separately — your net investment loss for MLS is $5,000, not $2,000.
Example: Negative gearing and MLS
The rental loss reduced taxable income to $107,000 — but MLS income is assessed at $115,000 because the loss is added back. This is Tier 1 (1% MLS rate).
Try this scenario
See how a negative gearing loss affects your MLS. Enter $107,000 taxable income with $8,000 in net investment losses.
Test negative gearing effectComponent 5: Family trust distribution tax
This is the least common component and will not apply to most people. Family trust distribution tax (FTDT) is a penalty tax at the highest marginal rate that applies when a trust with a family trust election distributes income to someone outside the nominated family group.
If FTDT has been paid on a distribution that would otherwise have been your assessable income, that amount is added to your MLS income. This prevents the trust from using the penalty tax to shield the distribution from the MLS assessment.
If you do not have a family trust or have never heard of this tax, you can safely ignore this component.
The calculation trap: what the MLS is actually charged on
This is the single most misunderstood aspect of MLS, and getting it wrong leads to overestimating your liability.
Your income for MLS purposes (all five components) determines which tier you fall into and what MLS rate applies. But the MLS percentage is only applied to your taxable income plus reportable fringe benefits. Reportable super contributions, net investment losses, and family trust distribution tax are used for the threshold test only — the surcharge is not charged on those amounts.
Determines your tier
Income for MLS purposes
Taxable income + RFB + RSC + net investment losses + FTDT
MLS charged on
Taxable income + RFB only
Super contributions and investment losses are excluded from the calculation base
Example: The difference in practice
A common mistake would be to calculate MLS as $105,000 × 1% = $1,050. The correct amount is $900 because super contributions are excluded from the calculation base.
Try this scenario
Try this exact scenario: $90,000 taxable income with $15,000 in reportable super contributions. Compare the MLS result against what you'd expect if the surcharge applied to the full $105,000.
See the calculation differenceWorked examples
These examples show how MLS income is calculated for common Australian scenarios. All use 2025–26 thresholds.
Scenario 1: Employee with a novated lease
Sarah earns $95,000 and has a novated lease on a $50,000 car. She also salary sacrifices $5,000 into super.
Scenario 2: Salary earner with a negatively geared property
James earns $110,000 and has an investment property making a net loss of $12,000 per year. No salary sacrifice or fringe benefits.
James's taxable income of $98,000 is below the $101,000 threshold — but the rental loss adds back, placing him in Tier 1. His MLS is calculated on $98,000 (the loss is not part of the calculation base).
Scenario 3: High-income professional with multiple components
Priya is a senior consultant earning $155,000. She salary sacrifices $20,000 into super, has a novated lease (RFBA $12,000), and a negatively geared share portfolio (loss of $4,000).
Try this scenario
Run any of these scenarios in the calculator. Try adjusting the salary sacrifice amount to see that MLS income stays the same.
Run Scenario 3Where to find each component on your tax return
Each component of MLS income maps to a specific item on your individual tax return. If you use myTax (the ATO's online lodgement system), most of these are pre-filled from your employer's Single Touch Payroll reporting.
| Component | Tax return item | Pre-filled? |
|---|---|---|
| Taxable income | Calculated at the end of page 3 | Most sources |
| Reportable fringe benefits | IT1 | Yes (via STP) |
| Reportable employer super contributions | IT2 | Yes (via STP) |
| Net financial investment loss | IT5 | Manual entry |
| Net rental property loss | IT6 | Manual entry |
| Family trust distribution tax | Adjustments section | Manual entry |
The MLS calculation itself is completed at item M2 in the Medicare levy section of the tax return.
How couples and families are assessed
When you have a spouse (married or de facto), the ATO assesses MLS based on your combined income for MLS purposes — even if only one partner earns above the single threshold. The family threshold for 2025–26 is $202,000, increasing by $1,500 for each dependent child after the first.
Each partner calculates their own MLS income (all five components), and the two are added together to determine the family tier. However, the actual MLS each partner pays is charged on their own individual taxable income plus reportable fringe benefits, at the rate determined by the combined family income.
Example: Couple with one high earner
Partner A: $150,000 taxable income, $8,000 salary sacrifice
Partner B: $55,000 taxable income, no other components
Couple & Family MLS Calculator
Enter both partners' income components separately and see the combined MLS assessment.
Common surprises that push you over the threshold
Most people who are surprised by an MLS bill fall into one of these categories:
“I salary sacrificed to get under the threshold”
This is the most common trap. Salary sacrifice into super reduces your taxable income but creates a reportable employer super contribution of the same amount. Your MLS income stays the same. The only way salary sacrifice helps is if it moves you between income tax brackets — it does not reduce your MLS income.
“My taxable income is under $101,000 — I didn't think MLS applied”
A novated lease alone can add $10,000–$20,000 to your MLS income through the grossed-up RFBA. Combined with even modest salary sacrifice, this can push someone earning $85,000–$95,000 above the threshold without them realising it.
“My investment property runs at a loss — I thought that helped”
A negative gearing loss reduces your taxable income and your income tax. But for MLS purposes, the loss is added back. If your salary is $108,000 and your rental loss is $10,000, your taxable income is $98,000 (below the threshold) — but your MLS income is $108,000 (above it).
“My partner earns less than $101,000 — why are we assessed together?”
If you have a spouse, the ATO uses the combined family income, not individual income, to determine the MLS tier. A couple earning $120,000 and $90,000 individually would be under the single threshold, but their combined $210,000 exceeds the $202,000 family threshold — putting them in Tier 1.
Try this scenario
Check whether your combination of income, fringe benefits, and super puts you above the threshold. Enter your details to see your actual MLS income.
Check your MLS incomeFrequently asked questions
Calculate your income for MLS purposes
Enter your taxable income, fringe benefits, super contributions, and investment losses to see your exact MLS income, which tier you fall into, and whether hospital cover would save you money.
Open the MLS Calculator →Related guides
How to Avoid the MLS →
Step-by-step strategies including qualifying hospital cover, threshold planning, and common mistakes.
MLS Thresholds 2025–26 →
Full breakdown of income tiers for singles and families, including threshold history.
Cheapest Hospital Cover for MLS →
Minimum qualifying policy requirements and indicative pricing.
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