The great debate continues as to whether to have private health insurance or not? and is it beneficial for tax purposes?
The Medicare levy surcharge (MLS) is levied on Australian taxpayers who do not have an appropriate level of private hospital insurance and who earn above a certain income.
It is designed to encourage individuals to take out private hospital cover, and where possible, to use the private hospital system to reduce demand on the public Medicare system.
The MLS is payable in addition to the Standard Medicare levy. The current Medicare rate is 2% of taxable income. Your Medicare levy is reduced if your taxable income is below a certain threshold currently $27,069. In some cases you may not have to pay the levy at all.
The ATO use a special definition of income (called income for MLS purposes) to determine whether you are liable to pay the MLS, and the rate you will have to pay. This is different to your taxable income.
If you have a spouse, your combined income for MLS purposes will be used.
Your income for MLS purposes is the sum of the following items for you (and your spouse, if you have one):
- taxable income (including the net amount on which family trust distribution tax has been paid)
- reportable fringe benefits(as reported on your payment summary)
- total net investment losses (includes both net financial investment lossesand net rental property losses)
- reportable super contributions (includes reportable employer super contributionsand deductible personal super contributions).
- if you have a spouse, their share of the net income of a trust on which the trustee must pay tax (under section 98 of the Income Tax Assessment Act 1936) and which has not been included in their taxable income.
- exempt foreign employment income (if you or your spouse had a taxable income of $1 or more and received such income).
If you (or your spouse) are between your preservation age and 59 years old and received a super lump sum, reduce income for MLS purposes by any taxed element of the lump sum, other than a death benefit, that does not exceed your (their) low rate cap.
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 purposes was $21,655 or less.
Medicare levy surcharge income threshold tables
| Table 2: MLS income thresholds for 2014–15, 2015–16, 2016–17 and 2017–18 | ||||
| Base tier | Tier 1 | Tier 2 | Tier 3 | |
| Single threshold | $90,000 or less | $90,001 – $105,000 | $105,001 –$140,000 | $140,001 or more |
| Family threshold | $180,000 or less | $180,001 – $210,000 | $210,001 – $280,000 | $280,001 or more |
| Medicare levy surcharge | 0% | 1% | 1.25% | 1.5% |
Note: The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.
If you do have to pay the MLS, it will be included with the Medicare levy and shown as one amount on your notice of assessment called Medicare levy and surcharge.
The Medicare levy surcharge can be avoided by obtaining a complying health insurance policy.
Your health insurance policy is complying if it:
- is provided by a registered health insurer
- provides hospital cover or combined hospital and general (also known as ‘extras’) cover
- 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.
But then your next issue is, if you receive a private health insurance rebate and at what level are you entitled.
The private health insurance rebate is an amount the government contributes towards the cost of your private hospital health insurance premiums.
This rebate is income tested, which means your eligibility to receive it depends on your income. If you have a higher income, your rebate entitlement may be reduced, or you may not be entitled to any rebate at all.
Most people claim the private health insurance rebate as a reduction in the amount of private health insurance premiums they pay to their insurer. Alternatively, it can be a refundable tax offset when you lodge your tax return. NOTE : The rebate percentage is adjusted on 1 April each year.
| Table : Rebate entitlement by income threshold 2017–18 | ||||
| Status | Income thresholds | |||
| Base tier | Tier 1 | Tier 2 | Tier 3 | |
| Single | $90,000 or less | $90,001 – $105,000 | $105,001 – $140,000 | $140,001 or more |
| Family | $180,000 or less | $180,001 – $210,000 | $210,001 – $280,000 | $280,001 or more |
| Age | Rebate for premiums paid 1 July 2017 – 31 March 2018 | |||
| Under 65 yrs | 25.934% | 17.289% | 8.644% | 0% |
| 65–69 yrs | 30.256% | 21.612% | 12.966% | 0% |
| 70 yrs or over | 34.579% | 25.934% | 17.289% | 0% |
| Age | Rebate for premiums paid 1 April 2018 – 30 June 2018 | |||
| Under 65 yrs | 0% | |||
| 65–69 yrs | 0% | |||
| 70 yrs or over | 0% | |||
Rebate percentages for premiums paid 1 April 2018 – 30 June 2018 will be published by the Department of Health in March 2018.