By Alisa Sainoski

Are you single and carefree or do you have a world full of responsibility, caring for children and your significant other.  Either way you should be thinking about your health and your families’ health.  Looking after your health and wellbeing should be the most important factor in your life but who knew that taking care of your health could lead to taking care of your tax responsibilities?

If you earn $90,000 or more and you are a single or you’re a family and earn more than $180,000 together, you should plan a head and contact your health insurance provider who may actually help minimise your tax liability when you lodge your income tax return.

Right, let’s start with Medicare Levy Surcharge (‘MLS’).  MLS was introduced by the Australian government on 1 July 1997 to encourage “higher income earners” to take out private hospital cover and to use the private system to reduce demand on public hospitals.

MLS affects taxpayers who do not have an appropriate level of Private Health Insurance (‘PHI’) and who earn above certain income thresholds.  MLS is payable in addition to Medicare Levy which is a standard 2% of your taxable income and which every Australian taxpayer has to pay (regardless of whether they have PHI).  The base income threshold under which you are not liable to pay the MLS is $90,000 for singles and $180,000 for families.  However, you do not have to pay the MLS if your family income exceeds the threshold but your own income for MLS purpose was $21,980 or less.

The MLS is a surcharge on top of the Medicare Levy of between 1%, 1.25% and 1.5% depending on your income and if you don’t have a private hospital cover.  The base tier is 0% as you would be below the MLS threshold.

Tier 1 is 1% for Singles with a threshold of $90,001-$105,000. Families’ threshold starts from $180,001-$210,000.  Tier 2 is 1.25% for single threshold of up to $140,000 and $280,000 for families.  The last Tier being Tier 3 is 1.5% for singles with a threshold of more than $140,001 and $280,001 for families.  If you have two or more dependent children, the family income threshold is increased by $1,500 for each dependent child after the first child.

The good news is that you can buy a basic level of hospital cover for around the same price as (or even less than) the additional tax you might have to pay.  The MLS is calculated on a daily rate, so if you only have private hospital cover for part of the financial year, you may have to pay MLS for the remaining part of the year.

Private patient hospital insurance cover is provided by registered health insurers for treatment provided by hospitals.  For singles, an appropriate level of cover must have an excess of $500 or less.  Families must have an excess of $1,000 or less.  General cover “Extra’s cover” is NOT private patient hospital cover, which will still lead you to pay the MLS.

The Private Health Insurance Rebate (‘PHIR’) is the amount the government contributes towards the cost of your private hospital health insurance premiums.  Historically, a rebate of 30% has been paid by the Government as an incentive to take out private patient hospital cover.  From 2013, the PHIR is income tested which means if your income is higher than the relevant threshold, you may not be eligible to receive some or all of the rebate.  The ATO calculate your correct entitlement to a private health insurance rebate when you lodge your tax return.

As the ATO does not tell your income to your insurer, your insurer may have given you too much or too little rebate.  If you’ve received a larger rebate than you are entitled to, the ATO will claim back the excess amount when you lodge your tax return.  The amount will be shown at the “Excess Private Health Reduction or Refund (Rebate Reduced) label on your notice of assessment.  If you want to avoid the liability in the future, you may contact your insurer and nominate a new rebate tier.  The rebate percentage is adjusted on 1 April each year.

The law has changed regarding the way registered health insurers provide you with your private health insurance details. It is now optional for registered health insurers to provide you with a private health insurance statement.  A statement will only be provided if you request one from your registered health insurer.

It is important to plan ahead as when preparing your income tax returns we to confirm whether you have an appropriate level of private patient health cover and the number of days you were covered in your policy.  This information is not available from the ATO’s online services.

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