You will often come across terms like “lifetime loading”, “medicare surcharge” or “government rebate” when signing up to a private health insurance policy or completing your tax return. The team at ExtrasJar explains these terms below to help you understand how they may affect you and the amount of tax you pay.
The purpose of Lifetime health cover (LHC) is to encourage you to purchase and maintain private patient hospital cover earlier rather than later in life. LHC loadings apply only to private patient hospital cover. They don’t apply to general treatment cover (also known as ancillary or extras cover).
If you do not take out and maintain private patient hospital cover from the year you turn 31 and you decide to take out hospital cover later in life, you will pay a 2% LHC loading on top of your premium for every year that you are aged over 30.
The maximum LHC loading that can be applied is 70%. Once you have paid LHC loading for 10 years of continuous cover, you will no longer have to pay this loading. For example, if you are 40 years old, you could end up paying an extra 20% on top of the cost of this cover per year for 10 years. If you are 50 years old, you could end up paying an extra 40% more per year for 10 years.
The Medicare levy surcharge (MLS) is levied on any taxpayers who do not have an appropriate level of private patient hospital cover and earn above a certain income threshold. MLS is designed to encourage individuals to take out private patient hospital cover.
What rates apply?
If you have to pay the MLS, it is important to know that it is payable is in addition to the Medicare Levy. A special definition of income is used (called income for MLS purposes) to determine if you have to pay the MLS, and the rate of MLS that you will have to pay. This income is different to your taxable income. The rate is 1%, 1.25% or 1.5%, levied on your taxable income, total reportable fringe benefits, and any amount on which family trust distribution tax has been paid.
The base income threshold (under which you are not liable to pay the MLS) is $90,000 for singles and $180,000 for families. You do not have to pay the MLS if your family income exceeds the threshold but your own income for MLS purposes is $22,801 or less.
If you are liable to pay the MLS, it is worked out on based on the information you provide in your tax return. It will be included with your Medicare levy and will show as one amount on your notice of assessment as a Medicare levy and surcharge.
If you want to calculate your Medicare levy surcharge, see the Income tax estimator and the Medicare Levy Surcharge income thresholds and rate tables on the Australian Tax Office website.
Private health insurance rebate
The private health insurance rebate is an amount that the government contributes towards the cost of your private health insurance premiums. The rebate can be claimed for premiums paid for a private health insurance policy that provides private patient hospital cover, general cover (commonly known as extras) or combined hospital and general cover.
Your rebate rate is the amount that you get back from your health insurance premiums, as a reduced premium or a refundable tax offset. The rebate is income based. If you have a higher income, your rebate entitlement may be reduced or may not be entitled to any rebate at all.
Do I qualify for a private health insurance rebate?
To qualify for a rebate, the following 4 conditions must be met:
- You must have a complying health insurance policy with an Australian-registered health insurer
- You can find the list of Australian-registered health insurers here
- You must be eligible for Medicare
- You must be a private health insurance beneficiary
All adults who are covered by a private health insurance policy are known as private health insurance incentive beneficiaries. If a policy only covers a dependent child (or children), then the parents of that child (or children) will be private health insurance incentive beneficiaries.
If the policy only covers a dependent child (or children) and the parents are not married (or de facto) at the end of the financial year, the payer of the premiums will be the only private health insurance incentive beneficiary, as long as the payer is not a dependent child.
- You must have an income for surcharge purposes that is less than the Tier 3 income threshold.
Tier 3 is the highest income threshold for both singles and families. Income for surcharge purposes includes:
- your taxable income (including the net amount on which family trust distribution tax has been paid, and excluding any assessable first home super saver released amount)
- your reportable fringe benefits (as reported on your income statement or payment summary)
- your total net investment losses (including both net financial investment losses and net rental property losses)
- your reportable super contributions (which is the sum of your reportable employer superannuation contributions and your deductible personal superannuation contributions).
If you were aged from your preservation age (it is based on when you are born and there is a look up table to make it easier to work out ) to under 60 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 income and your spouse’s income, using the above-mentioned criteria.
How do I calculate my private health insurance rebate?
Once you’ve worked out your income and whether you are single or a family for the purposes of the surcharge calculation (the Australian Tax Office have produced a guide ), you can calculate the rebate rate and apply this to your premiums paid. Below is the table showing the rebate percentage for each rebate group for the 2019-20 tax year. More information and more detailed tables for prior years can be found on the Australian Tax Office website. Remember that you have until 31st October 2020 to complete your tax return for the 2019-2020 financial year. Good luck!!!