Some history - the carrot and the stickPrivate Health Insurance tax offset
Some history - the carrot and the stick
The carrot wasn't attractive enough, so it became more succulent after 1/1/1999
Who gets the rebate for health insurance before 1/1/1999? - It depends on income!
How much rebate do you get for pre 1999 health insurance cover?
Who gets the rebate for health insurance after 1/1/1999? - Everyone who contributes!
How much rebate do you get for health insurance cover after 1/1/1999?
What is the Private Health Insurance Incentives Scheme?
In the early 1970's the Labor Government of Gough Whitlam achieved something that, Bill Clinton, President of the United States of America failed to achieve when he ascended to power.
It introduced a
universal health insurance scheme, funded, in part, by the Medicare Levy.It did this by hurling bucket loads of money at doctors to get their (grudging) agreement, and by allowing the existing private health insurance funds to coexist with the Government Health Insurance body, known as Medibank.
Since then, the universal health scheme has withstood many attacks, but has gradually taken on the indestructible aura of the British National Health Scheme.
So great is its popularity that the private health funds, which were allowed to coexist with it, have been losing members.
So great has this exodus of private health fund members been, that in 1997, the Government decided to prop up the private system by offering incentives to the general public, to remain with the funds.These incentives were very a case of the
carrot and the stick!The carrot
The Private Health Insurance Incentives Scheme provides a financial incentive to encourage families and individuals to take out and maintain private health insurance cover. They can choose to
take the incentive by
paying reduced premiums to private health insurance fund or
How do you claim the incentive through a private health fund?
If you choose to claim the incentive by paying lower private health fund premiums, you will need to fill out an Eligibility Questionnaire and Application. This application is available from private health funds.
by receiving a tax offset at the end of the income year.
The stick, or
what is the Medicare levy surcharge?From 1 July 1997, higher income individuals and families who do not have private patient hospital insurance will pay an extra 1% of their taxable income for the Medicare levy surcharge. This is in addition to the normal 1.5% Medicare levy.
Who will be affected?
You will have to pay the Medicare levy surcharge if you do not have the necessary private patient hospital insurance and you are:
a single person with a
taxable income greater than $50 000
a family with a
combined taxable income greater than $100 000
.
The
family income threshold increases by $1500 for each dependent child after the first.If your taxable income is below the income threshold, you will not have to pay the Medicare levy surcharge.
If your taxable income is above the income threshold and you take out the necessary private patient hospital insurance cover for you and for all your dependants, you will not have to pay the Medicare levy surcharge.
Want to know more about the carrot? Refer to the topic on
Medicare levy
The carrot wasn't attractive enough, so the government made it more succulent from 1/1/1999!
The health insurance incentives applying to the 1998 income year failed to stop the exodus of members from the private funds, so from 1/1/1999 it was decided to
Allow a 30% tax offset for contributions (if the incentive was not taken as premium reductions of direct payment)
Get rid of the income tests which had applied to determine eligibility for the incentive
There are 3 ways to receive the incentive for contributing to a health insurance fund
Direct payment
Reduced premiums
Tax offset
for health insurance before 1/1/ 1999?
61-300 spells out how the choice between lower health insurance premiums and a tax offset works.You can choose
to claim a tax offset for premiums paid under private health insurance policies, instead of
having premiums reduced under the Private Health Insurance Incentives Act 1997.
Section 61-305 provides the details of how it all works.
You will be entitled to the private health insurance tax offset if
the premiums must be paid by you or some other eligible person
under a private health insurance policy, which is defined in Division 3 of the Private Health Insurance Incentives Act 1997 and
you did not have those premiums reduced under section 5-1 of the Private Health Insurance Incentives Act 1997 income test under section 3-3 or 3-4 of that Act.
And what, you may well ask, is the income test under section 3-3 or 3-4 of the Private Health Insurance Incentives Act 1997?
Section 3-3 deals with the income test-
policies covering only one person(1)
If the policy covers only one person, the income test is satisfied… if the sum of the taxable incomes of all of the persons whose incomes are required by subsection (2) to be taken into account is less than the maximum amount under subsection (4)And what is the maximum under subsection (4)?
.(4) The maximum amount is:
(a)
if at all times during the financial year the person covered by the policy is not a dependent child and is not the partner of another person-$35,000
Section3-4 deals with the income test-
policies covering more than one person(1)
If the policy covers more than one person, the income test is satisfied… if the sum of the taxable incomes of all of the persons whose incomes are required by subsection (2) to be taken into account is less than the maximum amount under subsection (4).And what is the maximum under subsection (4)?
.(4) The maximum amount is:
(a) if the
persons covered by the policy do not include 2 or more dependent children at any time during the financial year concerned- $70,000; or(b) if, at any time during the financial year,
2 or more dependent children are covered by the policy-the amount worked out as follows:$70,000 + ($3,000 x (Number of dependent children - 1)).
Allow us to simplify all that for you…
You are eligible for the incentive when you have private health insurance cover and you are:
a single person with a taxable income of less than $35 000
a couple with a combined taxable income of less than $70 000
a family with a combined taxable income of less than $70 000. The family income threshold increases by $3000 for each dependent child covered by the policy after the first. Example: If the policy covers the members of a family that has 3 dependent children, the maximum amount under subsection (4) is:
$70,000 + ($3,000 x (3 - 1)) = $76,000.
If your taxable income is above these income thresholds, you are not eligible for the Private Health Insurance Incentives Scheme. You are also not eligible to participate in the scheme if you are a dependent child.
Can a couple share the rebate?
Yes!
Sections
61-315 and 61-320 lay down the rules for agreements to share the offset.
How much offset do you get for pre 1999 cover?
Section
61-310 says the tax offset is equal to the annual incentive amount for the private health insurance policy under section 5-3 of the Private Health Insurance Incentives Act 1997.And how does section 5-3 of the Private Health Insurance Incentives Act 1997 define the annual incentive amount?
(1) The annual incentive amount for a private health insurance policy is:
(a) the amount set out in the following table; or
(b) such other amount as is determined in writing by the Minister.
|
Number and kind of persons covered by the policy |
Hospital and ancillary/extras cover |
Ancillary/extras cover |
Ancillary/extras cover |
|
Policy covers 3 or more people |
450 |
350 |
100 |
|
Policy covers one dependent child and one other person |
450 |
350 |
100 |
|
Policy covers 2 people neither of whom are dependent children |
250
|
200 |
50 |
|
Policy covers one person |
125 |
100 |
25 |
So what amount of rebate are you allowed?
The amount you are able to get depends on the type of policy you have, and the amount of time you were covered by the policy. This table is a guide to the maximum amounts you can get.
Maximum annual incentive amounts
|
Policy type |
Hospital cover |
Ancillary/extras cover |
Hospital and ancillary/extras cover |
|
Single |
100 |
25 |
125 |
|
Couple |
200 |
50 |
250 |
|
Family (including sole parent) |
350 |
100 |
450 |
And how do you go about claiming the offset?
You can claim the incentive through the taxation system on your 1997-98 tax return. You do not need to fill out any application form to do this.
If you choose this method, you will get the incentive through reducing the amount of tax you have to pay on your taxable income. This is called a tax offset.
In order to benefit from the incentive through the taxation system, you must have a basic income tax liability for the year that is at least equal to the total amount of offset you are claiming. For example, if you are claiming a $250 tax offset for the incentive, you must have a basic income tax liability of at least $250 for that year.
Are their any other ways to claim the incentive through the taxation system?
No!
The only way you can claim the incentive through the taxation system is on your tax return. You cannot claim the incentive by varying the amount of tax your employer takes out of your pay, that is, your tax instalments deducted, or by varying your provisional tax payments.
Answer this question….
Maria is single and has private patient hospital cover and has not claimed a premium reduction through her private health fund.
Her taxable income is $6,500
What amount of offset will she be eligible for?
Maria will not receive the benefit of the full annual incentive amount because her basic income tax liability is less than her total tax offsets ($150 low income rebate plus $100 health insurance rebate) . Maria would have received the benefit of the full annual incentive amount if she had claimed a reduced premium through her private health fund.
Answer this question….
Gordon is single and has private hospital and ancillary cover. He has not claimed a premium reduction through his private health fund.
Gordon's taxable income is $34 000.
What amount of offset will she be eligible for?
He is eligible for an annual incentive amount of $125. Gordon will receive the full benefit of the offset because his basic tax liability is more than the total tax offset he is claiming.
Who gets the rebate for health insurance after 1/1/1999?
Individuals who pay a premium in respect of an appropriate private health insurance policy
in the year the offset is claimed
If an employer pays the premium as a fringe benefit for an employee, it is the employee who is eligible for the offset, not the employer. (section 61-330 to 61-345)
See section 6y1-335(4) for details of how a trustee assessed under section 98 of the 1936 Income Tax Assessment Act can also qualify.
What is an appropriate private health insurance policy?
A policy which provides persons who are eligible to claim benefits under Medicare with
Hospital cover
Ancillary cover
Combined cover
How much rebate do you get for health insurance cover after 1/1/1999?
30% of the amount of the premiums paid for the year of income
(Transitional arrangements apply for the year ended 30/6/1999 - refer paragraph 17-200 of the CCH Master Tax Guide)
.
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