REMINDER – You are not automatically eligible for the full 30% Private Health Rebate

Ben Wood, Friday, March 06, 2015

From July 2012 the Government announced important changes to the 30% private health insurance rebate entitlements. From the 2012-2013 financial year you are income tested as a single or a family

What is the Private Health Rebate anyway? The private health rebate is the Australian Government chipping in between 30% and 0% of the cost of your private health premiums. You pay the rest depending on your income level.

What does income testing mean in laymens terms? Basically if you earn too much your private health rebate may reduce from 29.04% to a lower rate. ATO look at your Income for Surcharge Purposes to apply the income test.

What is Income for Surcharge Purposes exactly? Good question. It is the sum of the following:

  • your taxable income (including the net amount on which family trust distribution tax has been paid)
  • your reportable fringe benefits (as reported on your payment summary)
  • your total net investment losses (including both net financial investment losses and net rental property losses)
  • your reportable super contributions (including reportable employer super contributions and deductible personal super contributions).

If you are 55–59 years old, you subtract from the total (above) any taxed element of a super lump sum, other than a death benefit, which you received that does not exceed your low rate cap.

Your family income for surcharge purposes is the combination of your and your spouse's income for surcharge purpose.

What is the big problem? Well it just means that the government are giving less assistance to those that earn more. That is not too bad though is it?

THE BIG PROBLEM: The main issue is most health funds are still applying the highest rebate % keeping your premiums at a minimum. This is great…….. until you find out, when doing your tax return, that your rebate should have been much lower, say 9.68% (for combined income for surcharge purposes of between $210,001 and $280,000. 

This creates 2 issues:

  1. Finding out exactly what your Income for Surcharge Purposes is. AND if you have a spouse/partner finding theirs out too and adding them together.
  2. Finding out if money is owed back to ATO or back to you
  3. FALLOUT:
    1. You and your partner must do your tax together. Most do but some don’t and this creates issues
    2. You must lodge at the same time or at least have both at final draft before lodging one return.
    3. You can guess but ATO will amend returns once 2nd partner in the couple lodges. Well usually 6 months later you will get a letter from ATO.

If you owe them money back or they owe you it is calculated into your final tax assessment refund/payable amount.

INCOME TESTS for the Year Ended June 2015

If your Income for Surcharge Purposes is:

  • greater than $90,000 as an individual
  • or $180,000 as a family/couple,

Your rebate % will drop down. Refer to table 10 on ATO website. Department of Health is yet to set the new rebate rates from 1 April 2015 and beyond.

 

INCOME THRESHOLDS

Singles

$0- $90,000

$90,001 - $105,000

$105,001 - $140,000

$140,001 and above

Families*

$0 - $180,000

$180,001 - $210,000

$210,001 - $280,000

$280,001 and above

MEDICARE LEVY SURCHARGE

Rate

0%

1%

1.25%

1.5%

*The families threshold is increased by $1,500 for each dependent child after the first.  Families include couples and single parent families.

The ATO will calculate your rebate entitlement based on your income for Medicare levy surcharge purposes when you lodge your income tax return.  If you receive less rebate than what you are entitled to, the ATO will refund the difference owed to you.  If you have claimed too much rebate, the ATO will collect the liability via your income tax assessment.

For the Year Ended 30th June 2014

If your Income for Surcharge Purposes is:

  • greater than $84,000 as an individual
  • or $168,000 as a family/couple,

Refer to table 9 on ATO website. To further complicate things the rebate % changed as of 1 April 2014 as well. Refer to table 9.

What should you do?

You have 2 options:

  1. Be aware of this and estimate your position. Ask your helath fund to reduce your rebate to the appropriate level. Thia avoids any end of year surprises. It also increases your monthly premiums. You pay the extra in 12 installments.
  2. Do nothing. Like most people. If you have to pay back that burns into your refund. It is money you would have paid regardless. You pay it off at tax time.

It’s important to note, if you don’t maintain an appropriate level of private patient hospital cover, you may become liable for Medicare levy surcharge.  The medicare levy surcharge rates will increase from 1 July 2012, as shown in the table above.

BEWARE: To get any rebate you and ALL OF YOUR DEPENDANTS must have appropriate level of hospital private cover in order for ANY of you to get a rebate. We have had a few cases where clients have not added new born children to their cover by accident or wife is covered and husband is not. In these cases no one gets any rebate.

If you have any questions or require specific advice, please contact our office on 1300 727 173.