Changes to private health insurance rebate and Medicare levy surcharge Introduction

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1 Changes to private health insurance rebate and Medicare levy surcharge Introduction For an explanation of terms used, see Definitions. From 1 July 2012, the private health insurance rebate and the Medicare levy surcharge will be income tested against three new income thresholds. This means that if you: have private health insurance, the amount of rebate you will be entitled to receive will reduce if your income is over a certain amount do not have an appropriate level of private patient hospital cover, and your income is over a certain amount, the rate of Medicare levy surcharge you will be charged will increase. We will determine the amount of private health insurance rebate you are entitled to receive when you lodge your tax return. This may result in a refund or a liability for you. What are the new income thresholds? The private health insurance rebate and Medicare levy surcharge will be income tested against the income thresholds in the table below. Unchanged Tier 1 Tier 2 Tier 3 Singles $84,000 or less $84,001-97,000 $97, ,000 $130,001 or more Families* $168,000 or less $168, ,000 $194, ,000 $260,001 or more Rebate Aged under 65 30% 20% 10% 0% Aged % 25% 15% 0% Aged 70 or over 40% 30% 20% 0% Medicare levy surcharge Rate 0.0% 1.0% 1.25% 1.5% * The family income threshold is increased by $1,500 for every child after the first child. The income thresholds are indexed annually. When does income testing start? Does the income testing of the rebate apply to premiums paid in the income year? No. The legislation to income test the private health insurance rebate starts from 1 July 2012 and will apply to premiums paid on or after that date. We will determine your private health insurance rebate entitlement for the income year (Tax Time 2013) and later years. Can you make a claim for a private health insurance tax offset in your of 9 8/06/ :34 AM

2 tax return for premiums that provide insurance cover for a future income year? Yes, providing: the premiums are paid in the income year you do not claim a tax offset for a premium payment where the private health insurance rebate has been claimed as a premium reduction, or a claim from Medicare. Premium payments you make in may be for a policy that provides insurance cover for a period that includes a future income year. When is a premium paid to a private health insurer? A premium payment occurs when your insurer receives the amount. The time of physical receipt of the amount by your insurer is the relevant time, not the date the payment was made to the insurer or when the insurer allocate the amount to the a member's account. Payment type Cash Electronic transfer of funds Money order or bank cheque Premiums paid When the cash is received by the private health insurer. When the funds are credited to the private health insurer's account. When the money order or cheque is received by the private health insurer, unless the money order or cheque is dishonoured. If you make a payment to a legal agent of your private health insurer, for example, where your insurer has an agreement for Australia Post to receive payments on their behalf, the payment of premium occurs when the agent receives your premium payment. When is a premium considered to be paid when you have an arrangement with your employer to pay the premium? A premium payment occurs when your private health insurer receives the amount. For example, if your employer withholds an amount for a private health insurance premium, the amount is paid to your insurer when they receive the payment from your employer (this may be a different time from when your employer withholds the amount). W ho checks claims for the private health insurance tax offset? We check claims made for the private health insurance tax offset against information provided by private health insurers. Has there been any change to when Medicare levy surcharge applies? No. The type and level of cover required to exempt you from paying Medicare levy surcharge has not changed, nor have the other exemption conditions or income threshold. From 1 July 2012, there will be two new income thresholds and applicable rates for when the surcharge applies. Claiming your rebate There will be no change in the methods for claiming your private health insurance rebate. You can claim your private health insurance rebate as a: premium reduction to your policy price with your insurer refundable tax offset through your tax return direct rebate refund from Medicare. There is also no change to the: type of complying private health insurance cover you need to be eligible for the rebate 2 of 9 8/06/ :34 AM

3 level of private patient hospital cover required to avoid paying the Medicare levy surcharge. Single income thresholds If you are single on the last day of the income year and have no dependants, you will be income tested against the single income thresholds. Family income thresholds If you have a spouse on the last day of the income year, you will be income tested on the combined family income of you and your spouse under the family income thresholds. If you are a single parent with one or more dependants, you will also be income tested under the family income thresholds. If as a couple or a single parent you have two or more children, the family income threshold is increased by $1,500 for every MLS dependent child after the first child. For example, if you have three dependent children, your family income threshold will increase by $3,000. How does the income testing work? When you lodge your tax return, we will calculate your income for Medicare levy surcharge purposes and determine your private health insurance rebate entitlement. What income is being income tested? The income test used for both the Medicare levy surcharge and entitlement to the private health insurance rebate is called Income for (Medicare levy) surcharge purposes. The way we calculate your income for Medicare levy surcharge purposes has not changed. For more information about what is included, refer to Income for (Medicare levy) surcharge purposes. If you want to work out your income for Medicare levy surcharge purposes, refer to Income for (Medicare levy) surcharge purposes calculator. This calculates the income of a single person. If you have a spouse on the last day of the income year, you can use the calculator to work out your combined family income by calculating your income and then your spouse's income and adding these together. Estimating your income When nominating your rebate tier to claim your rebate as a premium reduction, you need to think about how your circumstances may affect whether you are subject to the single or family threshold. You also should consider what income is included in the definition of income for Medicare levy surcharge purposes. You need to consider: whether you or your spouse could expect increased income in the financial year (for example, from a promotion, change in employment or overtime) your single or family status (for example, having a partner at the end of the financial year whether any children will no longer be in your care if any children are turning 21 older than 21 and under 25 and no longer in full time study. If we estimate your income may be above the new income thresholds, we will write to you late in The letter will advise you of the income testing starting on 1 July 2012 and that you can choose to contact your private health insurer to nominate a rebate tier. If you claim too much rebate If you have claimed too much private health insurance rebate, as a premium reduction or through Medicare, we will recover the amount as a tax liability. This liability will be listed on your notice of assessment. Toby is a single 67 year old and has a complying private health insurance policy at a cost of $1,000. Toby received 3 of 9 8/06/ :34 AM

4 a 35% private health insurance rebate of $350 as a premium reduction to the total cost of his policy. When Toby lodges his tax return his income for (Medicare levy) surcharge purposes is calculated as $95,000, which makes Toby a tier 1 income earner. As a tier 1 income earner over 65 Toby is only eligible for a 25% private health insurance rebate of the cost of his policy. As Toby was only eligible for a $250 premium reduction he will incur a $100 private health insurance liability which will be listed on his notice of assessment. For information about your notice of assessment, refer to Notice of assessment. If you have not claimed enough rebate If you have not received your full rebate entitlement, we will calculate the rebate you are due and refund this to you as a tax offset when you lodge your tax return. The tax offset will be listed on your notice of assessment. Donna is 35 years old and has a complying health insurance policy worth $1,500. Donna has paid her yearly premium in full and has chosen to claim a 10% private health insurance rebate of $150 from Medicare. When Donna lodges her tax return, her yearly income for (Medicare levy) surcharge purposes is calculated as $75,000. Donna's income falls below the first income tier threshold, meaning she is eligible for a 30% private health insurance rebate of $450 of the total cost of the policy. As Donna only received a $150 rebate from Medicare she will receive an additional $300 as a refundable tax offset when she lodges her tax return. The offset will be listed on her notice of assessment. For information about your notice of assessment, refer to Notice of assessment. Avoiding a private health insurance liability You can avoid a private health insurance liability from the income year by changing the amount of rebate you receive from your insurer. You do this by estimating your income and calling your private health insurer to nominate a rebate tier. Chris is single and his income for surcharge purposes last financial year was $100,000. Chris estimates he will earn a similar amount in Chris reviews the income threshold table and notes his income threshold places him in rebate tier 2. Chris contacts his insurer and nominates a tier 2 rebate. Chris's insurer will reduce the amount of rebate he receives for the cost of his policy to 20%. There are no penalties for making an incorrect rebate tier nomination with your insurer Who can claim the rebate? The payer of the policy will no longer be automatically entitled to the rebate. Each adult covered by the policy is entitled to claim a rebate for their share of the cost of the policy. Single If you are the only person covered by the policy, your share of the private health insurance policy is 100%. You are entitled to claim the rebate for the total cost of the policy. 4 of 9 8/06/ :34 AM

5 Narelle is single and is the only adult covered by her private health insurance policy. The total cost of her policy is $1,000. However, when she paid for the policy she nominated with her insurer to receive a premium reduction of 20%, reducing the amount paid for her insurance premiums of $800. When Narelle lodges her tax return, her income for Medicare levy surcharge purposes is $83,000. Her income is below $84,000, so she is entitled to receive a 30% rebate for the cost of her health insurance policy. Narelle received 20% upfront from her insurer through reduced premiums and she will receive the remaining 10% ($100) as an offset in her tax return. This offset will be listed on her notice of assessment. As a condition of Peta's employment, her employer pays part of her private health insurance policy. The total cost of Peta's insurance policy is $1,000. Peta claims a 30% premium reduction for the policy and Peta's employer has agreed to pay the remaining $700 for the policy. Peta lodges her tax return and her income for surcharge purposes for the year is calculated as $86,000. Peta's income falls into the income thresholds for rebate tier 1 so her rebate entitlement for the cost of her insurance policy is 20%. As Peta's employer paid 70% of the policy, and Peta elected to receive 30% as a premium reduction, Peta will incur a liability for the excess 10% rebate and it will be listed on her income tax notice of assessment. Multiple adults If a policy covers more than one adult, the premiums paid will be divided into equal shares by the number of adults covered by the policy at the time of the payment, regardless of who paid the premium. Each adult's share of the policy is equal to: Total cost of policy Number of adult(s) covered by policy Each adult will be income tested when they lodge their tax return to determine how much rebate they are entitled to receive. Charlie and Zoe are divorced however they share the same complying private health insurance policy. The total cost of the policy is $1000. Their share of the private health insurance policy is $500 each, and any rebate entitlement they are individually eligible for will apply to their share of the policy. Charlie and Zoe are both under 65 years of age. Zoe has an income of $100,000 and Charlie has an income of $30,000. They are both assessed under the income thresholds as singles. Zoe's individual income places her in the tier 2 income threshold so her rebate entitlement is 10% of her share of the private health insurance policy. Charlie's individual income is below the first income threshold and his rebate entitlement will remain at 30% of his share of the private health insurance policy. Are dependent children eligible for the private health insurance rebate? Dependent children covered by a complying health insurance policy are not eligible for the private health insurance rebate. Adults covered by the policy are eligible for their share of the private health insurance rebate. Your private health insurer will be able to advise you who is listed as a dependent child on the policy. Claiming the private health insurance rebate for your spouse If you have a spouse on the last day of the income year, and you are covered by the same complying private health insurance policy, you can make a choice to receive the total rebate entitlement, which may be a tax offset or a liability. 5 of 9 8/06/ :34 AM

6 You make this choice when you lodge your tax return. You may decide to do this if: your spouse is not required to lodge a tax return you and your spouse lodge your tax returns at separate times. One person in the relationship can choose to claim the private health insurance rebate for their spouse but they must inform the other spouse and the other spouse can not claim the rebate or liability. Leo and Sam are a de facto couple who live together and share a complying private health insurance policy. They are both under 65 years old. The total cost of their policy is $4,000, but they have received a 30% premium reduction and paid $2,800 for their policy as a result. Sam earned $180,000 as a financial consultant, whilst Leo spent the year undertaking volunteer work and did not earn any income. Their family income of $180,000 places them into the family tier 1 threshold where the private health insurance rebate available is 20% of the total premium. Leo and Sam received a 30% premium reduction of $1,200. Based on their income test, they are in the family tier 1 threshold and only entitled to a 20% reduction of $800. This means that Leo and Sam have a combined (private health insurance rebate) liability of $400, and are each liable for $200. Since Leo did not earn any income, he does not need to lodge a tax return. Sam and Leo agree that when Sam is completing his tax return he will be income tested for his and Leo's rebate entitlement when he lodges his tax return. This will mean that Sam will receive Leo's share of the liability. If you and your partner decide to claim the private health insurance rebate separately you will still be income tested using the family income thresholds to determine the correct percentage of your private health insurance rebate. Abby and Jed are in a de facto relationship and are both under 65 years of age. They have a combined income of $170,000 and their private health insurance policy costs $3,000, which they have paid in full without any premium reduction. Their combined income places them into income tier 1, where they are entitled to a 20% rebate as a couple ($600). Even though they claimed the private health insurance rebate separately through their tax return, they will be income tested using the family income threshold. Therefore they will each receive a tax offset of $300. If you aren't required to lodge a tax return You are still entitled to the rebate if you are covered by private health insurance and you are: a single person who is not required to lodge a tax return part of a couple who are both not required to lodge a tax return. You can receive your rebate entitlement either through a reduction in the amount of premium you pay to your health insurance fund or by claiming it as a refund from Medicare Australia. If you have a spouse and they are required to lodge a tax return, they can claim both their share and your share of the rebate when they lodge their return. They do this by completing the relevant section of their tax return. For more information about claiming from Medicare Australia, visit their website at Medicare levy surcharge changes What are the changes to the Medicare levy surcharge? From 1 July 2012, the Medicare levy surcharge will be income tested against the following income tier thresholds: Unchanged Tier 1 Tier 2 Tier 3 6 of 9 8/06/ :34 AM

7 Singles $84,000 or less $84,001-97,000 $97, ,000 $130,001 or more Families* $168,000 or less $168, ,000 $194, ,000 $260,001 or more Rates 0.0% 1.0% 1.25% 1.5% * The family income threshold is increased by $1,500 for every child after the first child. There is no change in how the Medicare levy surcharge applies. However, from 1 July 2012 the Medicare levy surcharge rate you will be charged may increase depending on your income tier. Josh is 35 years old, is single, and does not have the appropriate level of private patient hospital cover. In Josh's taxable income is $90,000. When Josh completes his tax return he also completes the income test section of the tax return and declares: reportable fringe benefits of $20,000 net investment losses of $7,000. Josh's total income for Medicare levy surcharge purposes is $117,000, which makes him a tier 2 income earner for calculating the Medicare levy surcharge. The amount of Medicare levy surcharge is only calculated against taxable income and reportable fringe benefits. In , Josh's Medicare levy surcharge liability is: ($90,000 taxable income + $20,000 reportable fringe benefits) x 1% = $1,100. In Josh's Medicare levy surcharge liability will be: ($90,000 taxable income + $20,000 reportable fringe benefits) x 1.25% = $1,375. For information about Medicare levy surcharge, refer to Guide to Medicare levy. When do you have to pay the surcharge? You may have to pay Medicare levy surcharge for any period during the year that you, your spouse, or any of your dependants: did not have an appropriate level of private patient hospital cover for the whole income year your income for Medicare levy surcharge purposes is above the tier 1 threshold. Claudia and Danny live together in a de facto relationship and they do not have any dependent children. Claudia does not have private health insurance, but Danny has an appropriate level of private patient hospital cover that covers him only. Claudia and Danny's income will be determined under the family income tiers. If their combined income is over $168,000, they will both be liable for the Medicare levy surcharge. This is because both Claudia and Danny need to have an appropriate level of private patient hospital cover to avoid paying the Medicare levy surcharge. For more information, refer to When do you have to pay the surcharge? W hat is considered income for the Medicare levy surcharge? 7 of 9 8/06/ :34 AM

8 The way you calculate your income for Medicare levy surcharge purposes has not changed. For more information about what is included as income for Medicare levy surcharge purposes, refer to What is your income for (Medicare levy) surcharge purposes?. Definitions Adult An adult is any person that is not a dependent child under the Private Health Insurance Act 2007 and is covered by the private health insurance policy. Complying private health insurance policy Your health insurance policy is complying if the following applies: it is provided by a registered health insurer it provides hospital or general (also known as 'extras') cover or combined hospital and general cover it meets other complying private health insurance policy requirements. If you are unsure, your private health insurer can tell you whether your policy meets these conditions. The Private Health Insurance Administration Council website at can tell you if your insurer is a registered health insurer. Dependent child for family income testing For the purposes of the definition of a family for the private health insurance rebate, a dependent child is any of the following: your child under 18 years old your child who is classified as a dependant under the private health insurer's rules and who is under 25 years old and does not have a partner your sibling who is under 25 years old, does not have a partner and is dependent on you for economic support on any day of the year. To claim the family thresholds as a single parent you must have contributed in a substantial way to the maintenance of the dependent child during the financial year. Dependent child under the Private Health Insurance Act 2007 A dependent child for the purposes of the Private Health Insurance Act 2007 is a person who is either: under 18 years old a dependent child under the rules of the private health insurer that is not aged 25 years or over and who does not have a partner. MLS dependent child An Australian resident child who is your child and either: under 21 years old 21 years old or older and under 25 years old and a full-time student. Premium reduction Reducing the amount paid for your private health insurance policy by claiming the private health insurance rebate directly through your insurer. Private health insurance rebate entitlement The amount of private health insurance rebate you are entitled to based on your income for Medicare levy surcharge purposes as either a single or family. Spouse Can be the same sex or opposite sex if on the last day of the income year any of the following apply: 8 of 9 8/06/ :34 AM

9 you are legally married you are in a relationship that is registered under a prescribed state or territory law you live with another person on a genuine domestic basis as a couple. Last Modified: Monday, 4 June 2012 Our commitment to you We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations. If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take. Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information. If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice. Copyright Commonwealth of Australia This work is copyright. You may download, display, print and reproduce this material in unaltered form only (retaining this notice) for your personal, non-commercial use or use within your organisation. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. Requests for further authorisation should be directed to the Commonwealth Copyright Administration, Copyright Law Branch, Attorney-General s Department, Robert Garran Offices, National Circuit, BARTON ACT 2600 or posted at 9 of 9 8/06/ :34 AM

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