Investment losses and super contributions in the surcharge test
Enter your taxable income, then your net investment losses and reportable super contributions: you see the tier they put you in and the surcharge that follows.
Your income for MLS purposes
$140,000
Tier 2: the 1.25 % rate falls on $115,000 of taxable income and fringe benefits, $1,438 a year without cover.
| Taxable income | $115,000 |
| Fringe benefits | +$0 |
| Super contributions | +$0 |
| Investment losses added back | +$25,000 |
| Surcharge without cover | $1,438 |
Prepared by Radif Partners · How the figures are built · thresholds read on ato.gov.au, premiums from privatehealth.gov.au data · not tax advice
Negative gearing and extra super contributions both lower your taxable income, and the ATO undoes both for the Medicare levy surcharge test. Your net rental property loss, your net financial investment loss, your reportable employer super contributions and your deductible personal super contributions are all added back to taxable income to give your income for MLS purposes, the figure compared with the $105,000 single threshold for 2026-27. They stop there. The surcharge rate itself is charged only on taxable income, reportable fringe benefits and any amount taxed as a family trust distribution. The ATO example of Josh shows both halves: $90,000 of taxable income, $20,000 of fringe benefits and $17,000 of net investment losses give $127,000, tier 2, but the 1.25 % rate falls on $110,000 only, $1,375. Add-backs can raise your tier, and therefore your rate, without ever being taxed themselves.
Two tests, one tax
The surcharge is easiest to understand as two separate questions asked of two different incomes. The first question is which tier you are in, and it uses income for MLS purposes, which starts from taxable income and adds back reportable fringe benefits, reportable super contributions, net investment losses and amounts taxed as family trust distributions. The second question is how much you pay, and it uses a narrower base: taxable income, reportable fringe benefits and family trust distribution amounts. Investment losses and super contributions appear in the first list and not in the second. That gap is the whole subject of this page.
| Item | Counts for the tier | Charged at the rate |
|---|---|---|
| Taxable income | yes | yes |
| Reportable fringe benefits | yes | yes |
| Amount taxed as a family trust distribution | yes | yes |
| Net rental property loss | yes | no |
| Net financial investment loss | yes | no |
| Reportable employer super contributions | yes | no |
| Deductible personal super contributions | yes | no |
| First home super saver released amount | no | no |
Negative gearing: the loss comes back for the tier
Take a single person earning a salary of $140,000 who owns a rental property with a net loss of $25,000. Their taxable income is $115,000, and on that figure alone they would be in tier 1, paying $1,150 without cover. The ATO adds the loss back: income for MLS purposes is $140,000, which is tier 2. The rate of that tier, 1.25 %, is then charged on the taxable income of $115,000, not on $140,000. The surcharge without hospital cover is $1,438, $288 more than the taxable income alone would suggest, entirely because of the higher tier.
Your rental or share loss and the tier
Your income for MLS purposes
$125,000
| Taxable income | $98,000 |
| Fringe benefits | +$12,000 |
| Super contributions | +$0 |
| Investment losses added back | +$15,000 |
Super contributions: same logic, smaller amounts
A deductible personal super contribution lowers taxable income in the same way. A person on $112,000 who claims a deduction for a $12,000 personal contribution has a taxable income of $100,000, under the threshold. The ATO adds the contribution back, so income for MLS purposes stays at $112,000, tier 1. The 1.00 % rate is then charged on the taxable income of $100,000, $1,000 without cover, against $1,120 if the same $112,000 had all been taxable income. The contribution has not removed the surcharge, but it has lowered the amount it is charged on.
Reportable employer super contributions, the amount your income statement reports under that name, are treated the same way. The M2 worksheet takes them from question IT2, label T, and deductible personal contributions from question D12, label H, of the supplementary return.
Where the losses push you over a line
The effect is sharpest just below a threshold. The table keeps taxable income at $100,000 for a single person and raises the add-backs, losses or super, from nothing.
| Add-backs | Income for MLS purposes | Tier | Rate | Surcharge without cover |
|---|---|---|---|---|
| $0 | $100,000 | Base tier | 0.00 % | $0 |
| $10,000 | $110,000 | Tier 1 | 1.00 % | $1,000 |
| $20,000 | $120,000 | Tier 1 | 1.00 % | $1,000 |
| $30,000 | $130,000 | Tier 2 | 1.25 % | $1,250 |
| $40,000 | $140,000 | Tier 2 | 1.25 % | $1,250 |
The charged amount never moves: it is always the same $100,000. Only the rate climbs, from nothing to 1 % and then 1.25 %, as the add-backs grow. For an investor whose losses vary from year to year, the tier can change even when salary does not.
Couples: each partner's add-backs join the family total
For a couple or family, the tier comes from the combined income for MLS purposes of both partners, so one partner's rental loss raises the household's figure against the $210,000 family threshold. Each partner then pays the rate on their own taxable income and fringe benefits. A spouse with a large negatively geared property and a small salary can therefore move the other partner into the surcharge. The couples page shows the split.
What the add-backs do not include
Only the items on the ATO list are added back, and one amount is expressly taken out: an assessable first home super saver released amount does not count in the taxable income used for the test. If you had exempt foreign employment income and a taxable income of at least one dollar, the ATO asks you to add that income to taxable income on the worksheet. The income for MLS purposes page has the full worksheet, and the method page explains which items our calculator models.