Changes to private health insurance rebate and Medicare levy surcharge
Changes to private health insurance rebate and Medicare levy surcharge
Summary of changes
The private health insurance rebate is an amount that the government contributes towards the cost of your private health insurance premiums. The majority of people with private health insurance claim the rebate as a reduction in the amount of premiums they pay to their private health insurers (known as premium reduction).
From 1 July 2012, the private health insurance rebate is income tested based on income for surcharge purposes. This means that if you have a higher income, your rebate entitlement may be reduced, or you may not be entitled to receive any rebate at all.
See the Private health insurance rebate income tests to find out what percentage of rebate you are entitled to receive in 2012-13 and 2013-14.
You will be income tested on your share of the private health insurance policy. This may mean that your household will get more than one annual statement from your insurer for the one policy if there was more than one adult on the policy when the premiums were paid.
There have also been changes to Medicare levy surcharge. If you and all your dependants do not have an appropriate level of private patient hospital cover for the full year and your income is more than the relevant income test threshold, the Medicare levy surcharge may apply.
See Completing your tax return 2013 for more information on:
- understanding your private health insurance statement
- determining your tax claim codes.
You will also find additional information on how to complete your tax return if you:
- are claiming the rebate for your spouse
- prepaid your private health insurance policy in 2012-13
- are claiming for a dependant child only policy
- are covered as a dependent child on a policy
- claimed your rebate from a Medicare Service Centre.
When you lodge your tax return, we will test your income against the three new income thresholds to determine the level of rebate you are entitled to receive. Depending on how you claimed your rebate and the level of rebate you claimed, this may result in a tax debt or a tax offset. See Private health insurance rebate income tests.
How the private health insurance rebate works
This is an amount that the government contributes towards the cost of your private health insurance premiums. From 1 July 2012, your eligibility to a private health insurance rebate will depend on your single or family income for surcharge purposes.
You can either receive this rebate up-front through a reduction in the cost of your premiums from your insurer or in the form of a rebate when you lodge your tax return.
Example
Peter is single with no dependents, 45 years old and earns $100,000 in 2012-13. He has a private health insurance policy that costs him $2,000 per year. Peter's income level entitles him to a 10% rebate on his private health insurance costs.
Peter can either choose to receive a 10% reduction in premiums from his health insurer (that is, $200 reduction) or he can elect to claim the rebate (also $200) in his tax return.
Claiming your rebate
You can claim your private health insurance rebate as either a:
- premium reduction, which lowers the policy price charged by your insurer
- refundable tax offset through your tax return
- direct rebate payment from your local Medicare Service Centre, or by sending a claim form to the Department of Human Services.
Lifetime health cover
Lifetime health cover (LHC) is designed to encourage people to purchase hospital cover earlier in life and to maintain their cover. LHC loading is a penalty that generally applies when a person has not taken out and maintained private health insurance from the year they turn 31 years old.
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Lifetime health cover is not paid by all people. To avoid incurring a LHC loading, residents of Australia must ensure they hold appropriate private patient hospital cover before they reach their LHC base day.
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For many people, their LHC base day is 1 July following their 31st birthday, but this can change depending on personal circumstances.
LHC loadings apply only to private patient hospital cover. They do not apply to general treatment cover (also known as ancillary or extras cover).
Loading amount
The amount of a person's loading is determined by the number of years they are over 30 years old at the time they take out hospital cover. Each year will attract an extra 2% to their hospital cover premium. For example, a person who waits until they are 40 years old could pay an extra 20% on the cost of their hospital cover. If they wait until they are 50 years old, they could pay 40% more. The maximum LHC loading that can be applied is 70%.
Proposed legislative amendment
The government is proposing to cease paying the private health insurance rebate on LHC loading applied to the costs of a policy from 1 July 2013.
Example
On 1 July 2013, Rebecca pays a premium for two months cover under a complying health insurance policy of $220. Due to Rebecca's circumstances, she incurs a 10% increase in her premium because of the LHC loading. The base premium for the policy is $200 and the LHC loading is $20. Rebecca's income is $59,000 and she is eligible for the 30% rebate.
Rebecca receives a rebate of $60, which is 30% of the $200 base premium. Rebecca does not receive any rebate on the $20 paid for LHC loading.
How the Medicare levy surcharge works
Individuals and families on incomes above the Medicare levy surcharge thresholds, who do not have an appropriate level of private patient hospital cover, may be required to pay Medicare levy surcharge for any period during the year that they did not have this cover.
The Medicare levy surcharge is in addition to the Medicare levy.
Completing your tax return
Understanding your private health insurance statement
If you are an adult covered by a health insurance policy when the premiums were paid, you will be income tested on your share of the policy regardless of who paid the premiums and regardless of how many other people may also be covered on your policy.
Each adult covered by the policy will receive their own private health insurance statement from their insurer that will list their share of the premium payments and rebate (if any) received from the government.
You will need your private health insurance statement to complete the private health insurance policy details item on your tax return. It is important to complete this section because we need to assess your entitlement for a private health insurance rebate.
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If you did not get a private health insurance statement, you will need to contact your insurer to get a copy before you complete your tax return.
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Below is an extract of a sample annual private health insurance statement. You should have received something similar from your private health insurer in July.
The labels on your private health insurance statement have the following meanings:
- Health Insurer ID - this is a unique code that helps us identify which private health insurer you are insured with.
- Membership Number - this is the number that is attributed to your private health insurance policy.
- Your share of premiums paid in the financial year - this is your share of the premiums that have been paid for your policy.
- It doesn't matter if you didn't pay for the policy.
- If you are covered by the policy when the payments were made, you have received the benefit of the rebate on your share of the policy.
- If you are the only person listed on the policy then your share will be 100% of the premiums that have been paid. If there are two adults on the policy when the payments were made, your share of the premiums paid will be 50%, and so on.
- Your share of Australian Government rebate received - this is your share of the private health insurance rebate that you have received as reduced premiums from your insurer (if your policy covers more than one adult when the payments were made, this amount is only your share of the rebate and is not the total amount of rebate received for the whole policy).
- Benefit code - the level of your rebate is also calculated on the age of the oldest person covered by the policy.
- We use the benefit code to apply the right level of rebate based on the age of the oldest person covered by the private health insurance policy.
- Legitimate codes are 30, 35 or 40.
- Other adult beneficiaries for the policy- if your policy covered more than one adult at the time the payments were made then the other beneficiaries will be listed here.
- For example, if you and your spouse were on the policy for the same period of time and payments, your spouse's name would be listed here to indicate they shared the overall costs of the private health insurance policy.
- If you were on a single policy for the whole year, there will be no other adult beneficiaries in respect of the policy.
Private health insurance policy details section
To make it easier for you to complete your tax return, the labels on your private health insurance statement are coded with letters that exactly correlate to the private health insurance labels in your tax return. Write these amounts on your tax return, for example, take the figure at label B on your private health insurance statement and write it at label B on your tax return.
Below is an extract of the private health insurance policy detail section of a paper tax return. The layout will look different if you are using e-tax.
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The Tax claim code you need to type or write is not provided on your private health insurance annual statement. Read our instructions on Tax claim codes so you can choose the appropriate code.
Only type or write information in once for each private health insurance policy you had during the financial year. If you had more than one line of information on your statement for a policy, complete an entry on your tax return for each line on your statement. If you are claiming the rebate for your spouse, see the instructions on how to do this.
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M2 Medicare levy surcharge
The section of the extract below relates to the Medicare levy surcharge.
Medicare levy surcharge may apply if you and all your dependents did not maintain an appropriate level of private patient hospital cover for the full income year. Use the number of days listed at A to help your complete question M2 on your tax return. See the Individual tax return instructions for more information on how to complete this.
Tax claim codes
Below is an extract of your tax return. Your tax claim code at the bottom right corner of this extract is important as it can affect the amount of private health insurance rebate you are entitled to receive. This code does not appear on your private health insurance statement.
You will need to select a code from the tables below that best describes your circumstances.
Once you have selected a code, type or write the letter in the Tax claim code box on your tax return.
Table 1: Single adults
Your circumstances
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Tax claim code for your tax return
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You are a single adult as at 30 June 2013
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A
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You are a single adult as at 30 June 2013 and have a dependent child or children
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B
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Table 2: Adults (with or without dependents) who have a spouse
You have a spouse as at 30 June 2013
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C
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You have a spouse as at 30 June 2013 and they have agreed that you should claim their share of the rebate in your tax return because they aren't claiming it themselves. For more information see Claiming the rebate for your spouse
You will use your spouse's statement to complete an entry for your spouse's share private health insurance details
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Use code:
- C for your rebate claim (your first entry)
- D for the rebate you are claiming on behalf of your spouse (your second entry)
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You have a spouse as at 30 June 2013 and you have agreed that they should claim your share of the rebate in their tax return because you aren't going to claim it yourself. For more information, see Claiming the rebate for your spouse
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E
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Table 3: Adults who paid for a dependent child only policy
A dependent child or children are the only people on the policy and the parent claiming the rebate (or the payer of the policy premiums) has a spouse.
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C
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A dependent child or children are the only people on the policy and the parent claiming the rebate (or the payer of the policy premiums) does not have a spouse. For more information, see Claiming a rebate when you have a dependent child only policy
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B
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Table 4: People covered as a dependent child on a private health insurance policy (with their family or independently)
If you are covered as a dependent child on a private health insurance policy, you are not entitled to receive the rebate.
Dependent children need to type or write their private health insurance details (Membership Number and Health Insurer ID) in their tax return, including the tax claim code if their income is above the threshold so they do not have to pay the Medicare levy surcharge.
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F
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Your rebate entitlement depends on how much income you have earned. For more information, see Income testing.
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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 for the same period of time, you can make the choice to claim your spouse's rebate entitlement in your tax return, as well as your own.
You may decide to claim your spouse's share of the rebate if:
- your spouse is not required to lodge a tax return
- you and your spouse lodge your tax returns at separate times.
Alternatively, you may agree to allow your spouse to claim your rebate entitlement in their tax return, as well as their own.
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If you claim for your spouse, they cannot claim a rebate as well. Your spouse must agree to this.
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If you are claiming your spouse's share of the rebate
If your spouse has agreed that you should claim their share of the private health insurance rebate (as well as your own), follow the steps below to complete your tax return:
- Type or write your private health insurance information in the private health insurance section of your tax return based on the instructions in the individual tax return instructions and use Tax claim code C.
- Using your spouse's private health insurance statement, type or write your spouse's private health insurance information in the private health insurance policy details section of your tax return beneath your information from Step 1.
- Type or write Tax claim code D in your tax return next to your spouse's private health insurance details that you have provided.
Example
Stephen and Mary are a de-facto couple who live together and share a complying private health insurance policy. They are both 45 years old and have no children.
Stephen earned $140,000 as a financial consultant, while Mary spent the year undertaking volunteer work and did not earn any income.
Stephen and Mary decided not to receive any premium reductions on their private health insurance policy as they were unsure what their income would be for the financial year. Based on their income test, they are entitled to a 30% private health insurance rebate.
As Mary did not earn any income she is not going to lodge a tax return. She agrees that Stephen can claim her share of the private health insurance rebate in his return.
When Stephen lodges his tax return on e-tax, he types:
- his private health insurance details (Tax claim code C)
- Mary's private health insurance details below his (Tax claim code D).
If your spouse is claiming your share of the rebate
This section only applies if you want your spouse to claim your private health insurance rebate in their tax return and you are still lodging your own return.
Fill out your information in the private health insurance section of your tax return based on instructions in the individual tax return instructions using tax claim code E.
Prepaid private health insurance
If you paid for your entire 2012-13 private health insurance cover before 1 July 2012 (that is, you paid no premiums during 2012-13), you still need to type or write the private health insurance policy details in your 2012-13 tax return. This will confirm that you had an appropriate level of private patient hospital cover for all or part of the financial year and will ensure that we do not charge Medicare levy surcharge.
You should have received a private health insurance statement from your insurer. Your statement will have the details of your policy and show $0 values in label J (your share of premiums paid in the financial year) and K (your share of rebate received). Use your statement and the instructions to guide you in completing your tax return. Type or write the $0 values at the relevant labels on your tax return and use the tax claim code applicable to your situation.
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If you prepaid your insurance for 12 or more months you may want to consider contacting your private health insurer to nominate a different rebate tier.
There is no requirement for you to change the level of rebate you receive as a premium reduction, however it will reduce the chance of you getting a liability next tax time. See Nominating a new rebate tier for more information.
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Claiming the rebate for a dependent child only policy
This section only applies if you have dependent children who are covered by their own private health insurance policy. Dependent children are not eligible to claim a private health insurance rebate, however if you have paid for their policy you may be eligible to claim it on their behalf.
If the parents of the child are:
- together then one of the parents may claim the rebate - this applies regardless of which parent paid for the policy.
- no longer together then the payer of the policy must claim the rebate - the payer of the policy does not need to be a parent of the child.
Follow the steps below to complete your tax return:
- Using the private health insurance statement that relates to the dependent child's private health insurance policy, complete your tax return based on instructions in the individual tax return instructions.
- Choose the appropriate tax claim code from the table below and type or write it into your tax return next to the other information you have already typed or written.
Table 5: Appropriate tax claim code
Your circumstances
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Tax claim code for your tax return
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Your dependent child (children) is the only person on the policy and the parent claiming the rebate (or payer of the policy premiums) has a spouse.
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C
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Dependent child (children) is the only person on the policy and the parent claiming the rebate (or payer of the policy premiums) does not have a spouse.
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B
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If you are a dependent child who is not eligible to claim a private health insurance rebate, the Medicare levy surcharge can still apply if your income is high enough. If you have an appropriate level of private health insurance, you can avoid paying this surcharge by typing or writing the details from the statement for your policy in your tax return and using tax claim code F.
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If you are a dependent child
This section applies if you are covered as a dependent child on a private health insurance policy. You can be covered on a private health insurance policy up to the age of 25, subject to the rules of your insurer (and you meet other conditions). If you are unsure if you are covered as a dependent child or an adult, contact your health insurer.
Dependent children do not get their own statement because they cannot claim the rebate and are not subject to the income test. You may need complete the private health insurance policy detail section of your return so we can verify your private health insurance coverage and ensure that you are not charged Medicare levy surcharge (if your income is above the threshold).
To complete the private health insurance section of your tax return you will need to get a statement from one of the adults covered on the policy.
Follow the steps below to complete your tax return:
- Using the private health insurance statement of an adult on the policy, complete your tax return based on the instructions in the individual tax return instructions.
- Type or write Tax claim code F.
Claiming your rebate from Medicare
This section only applies to a small number of people who have claimed a private health insurance rebate directly from Medicare and need to lodge a tax return.
Some people with private health insurance policies pay the full premium amount to their insurer and then claim their private health insurance rebate from a Medicare Service Centre. If you have done this, you will need your receipt from Medicare with the details of the amount of rebate you have been paid for your policy in the financial year. You will also need your private health insurance statement.
Because you claimed the rebate from a Medicare Service Centre, you will need to recalculate the amounts shown at labels J (your share of premiums paid in the financial year) and K (your share of rebate received).
Follow the steps below to calculate the amounts that you type or write in the private health insurance section of your tax return.
- Divide any rebate amount you have received from Medicare by the number of adults covered by the policy at the time of the payment. Add this figure to any amounts shown on your private health insurance statement at label K. Type or write this amount at label K, (your share of Australian Government rebate received) in the private health insurance section of your tax return.
- Take the amount at label J of your private health insurance statement and reduce it by the amount of your share of the rebate you received from Medicare. Type or write this amount at label J (your share of premiums paid in this financial year) of your tax return.
What happens when you lodge
If you claimed too much rebate
If you claim too much private health insurance rebate as a premium reduction, we recover the amount as a tax liability. This liability is listed on your notice of assessment. This will be called an Excess private health insurance refund or reduction (rebate reduced).
Example
Toby is single and 67 years old. He has a complying private health insurance policy at a cost of $1,000. Toby received 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 surcharge purposes is calculated as $95,000, which puts him in the tier 1 income threshold.
The rebate under tier 1 for a person who is 65 years old is 25% of the total cost of the policy. As Toby was only eligible for a $250 premium reduction, he incurs a $100 liability which is listed on his notice of assessment as an Excess private health insurance refund or reduction (rebate reduced).
If you did not claim enough rebate
If you have not received your full private health insurance rebate entitlement, we calculate the rebate amount you are due and refund this to you as a tax offset when we assess your tax return. The tax offset is listed on your notice of assessment.
Example
Donna is 35 years old and single, and has a complying health insurance policy worth $1,500. Donna expects to receive a promotion with income of $100,000 in 2012-13. To avoid a potential liability, she contacts her insurer and nominates to receive a tier 2 private health insurance rebate as a premium reduction. Donna receives a reduction of 10% on her premiums, which equates to $150.
Donna did not end up getting her promotion and when she lodges her tax return, her income for surcharge purposes is calculated as $75,000. Donna's income is below the base tier income threshold, meaning she is eligible for a 30% private health insurance rebate. This means Donna is entitled to a total private health insurance rebate of $450 for her policy.
As Donna only received a $150 premium reduction from her insurer, she receives an additional $300 as a refundable tax offset when she lodges her tax return. The offset is listed on her notice of assessment.
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.
There are several ways you can choose to claim your rebate.
You can elect to receive your rebate entitlement through a reduction in the amount of premium you pay to your health insurance fund.
Another option is to claim your rebate entitlement from your local Medicare Service Centre, or by sending a claim form to the Department of Human Services.
Alternatively 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 tax return. They do this by completing the relevant section of their tax return.
If you wish to lodge your own return, you can use the short tax return which is designed for individuals with simple affairs. For more information, refer to Short tax return for individuals.
Understanding your notice of assessment
When you lodge a tax return, we will send you a notice of assessment, which is an itemised account of the amount of tax payable on your taxable income.
Your notice of assessment may contain an amount for:
- excess private health reduction or refund
- tax offset.
Excess private health reduction or refund (rebate reduced)
This item relates to your private health insurance rebate. When you lodge your tax return, we will calculate your entitlement to receive a rebate. However, if you have already received too much rebate by receiving reduced private health insurance premiums from your insurer, we will recover the excess amount you received as a liability (or debt) on your notice of assessment. This is the amount listed at the Excess private health reduction or refund (rebate reduced) label.
The reason that your insurer may have given you too much rebate is because, from 1 July 2012, your entitlement to the private health insurance rebate is income tested. This means that if your income for surcharge purposes is above a certain level you may only be entitled to a reduced amount of rebate or none at all.
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We do not tell your insurer your income. If you want to avoid the liability in the future you can contact your insurer and nominate a new rebate tier.
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Private health insurance tax offset
If you have not claimed your full rebate entitlement for your policy then we will pay you any rebate entitlement you are owed as a tax offset.
Any tax offsets that you receive, including your private health insurance tax offset, will be added together and will appear as a credit on your notice of assessment.
Avoiding a private health insurance liability in the future
Your private health insurer may be giving you an up-front private health insurance rebate by reducing your insurance premiums, for example, by reducing your premiums by 30%. However, if your income for surcharge purposes is above the thresholds, you may be receiving too much private health insurance rebate and you may incur a private health insurance debt when you lodge your tax return.
To avoid this liability you can choose to contact your insurer to nominate a new rebate amount. This means you will receive less rebate upfront as a premium reduction.
Nominating a new rebate tier
You can avoid receiving a private health insurance debt when you lodge your tax return by changing the amount of private health insurance rebate you receive from your insurer as a premium reduction at the beginning of the income year.
You can do this by estimating your income for surcharge purposes for 2013-14 and contacting your private health insurer to nominate a new rebate amount. Our Private health insurance rebate calculator can help you estimate your income and determine your rebate tier.
If you overestimate your income, and do not claim your full rebate entitlement as a premium reduction, we will pay back any entitlement you are owed as a tax offset at tax time.
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There are no penalties for making an incorrect rebate nomination with your insurer.
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Private health insurance income thresholds for 2012-13 and 2013-14
The private health insurance rebate is income tested - this means that if you earn too much income for surcharge purposes you may not be eligible to receive a private health insurance rebate.
When you lodge your tax return, we calculate your income for surcharge purposes and determine your private health insurance rebate entitlement. The definition of income for surcharge purposes explains how we calculate it.
If you have a spouse on 30 June your family income threshold is the combination of your and your spouse's income for surcharge purposes.
Work out your entitlement
If you are:
- single, use your income for surcharge purposes to determine your entitlement
- a family, use the combined income for surcharge purposes of you and your spouse (if you have one) to determine the percentage of your rebate (the level is based on the oldest person covered by the policy).
Table 6: Entitlement by income threshold for 2012-13
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Income thresholds
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Singles
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$84,000
or less
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$84,001-97,000
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$97,001-130,000
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$130,001
or more
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Families*
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$168,000
or less
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$168,001-194,000
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$194,001-260,000
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$260,001
or more
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Private health insurance rebate entitlement
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Base tier (no change)
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Tier 1
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Tier 2
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Tier 3
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Under 65 years old
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30%
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20%
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10%
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0%
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65-69 years old
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35%
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25%
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15%
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0%
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70 years old or over
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40%
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30%
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20%
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0%
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* The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.
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The income thresholds are indexed annually.
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Table 7: Entitlement by income threshold for 2013-14
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Income threshold
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Singles
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$88,000
or less
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$88,001 - 102,000
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$102,001 -136,000
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$136,001
or more
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Families*
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$176,000
or less
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$176,001 - 204,000
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$204,001 - 272,000
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$272,001
or more
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Private health insurance rebate entitlement
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Base tier
(no change)
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Tier 1
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Tier 2
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Tier 3
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Under 65 years old
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30%
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20%
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10%
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0%
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65-69 years old
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35%
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25%
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15%
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0%
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70 years old or over
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40%
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30%
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20%
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0%
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* The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.
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The income thresholds are indexed annually.
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Single and family incomes
If you are single on the last day of the income year and have no dependants, you are income tested against the single income thresholds.
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If you had a spouse during part of the income year, but on 30 June of the income year you no longer had a spouse, you are treated as single and you are income tested against the single income thresholds.
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Family income
If you:
- have a spouse on the last day of the income year, you are income tested on your and your spouse's combined family income under the family income thresholds
- do not have a spouse on the last day of the income year and either maintain a dependant child or children or contribute in a substantial way to the maintenance of a dependent child, you are income tested on your income under the family income thresholds
If you have two or more children, the family income threshold is increased by $1,500 for every Medicare levy surcharge dependent child after the first child. For example, if you have three dependent children, your family income threshold increases by $3,000.
We do not include your dependent child's income when we calculate your family income.
When you estimate your income, you need to think about how your circumstances may affect whether the single or family threshold applies.
You should also consider what income is included in the definitions of income for surcharge purposes and income for Medicare levy surcharge purposes.
You need to consider:
- whether you or your spouse expect increased income in the income 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 income year
- whether any dependent children will no longer be in your care
- if any dependent children are
- turning 21 years old
- older than 21 and under 25 years old, and are no longer in full-time study.
Each adult covered by the policy is income tested
Each adult covered by the policy is income tested to determine their entitlement to a private health insurance rebate, regardless of who pays for the insurance policy. Previously, the payer of the policy was entitled to the private health insurance rebate.
Each adult will be income tested based on their share of the cost of the insurance policy.
One adult covered by a policy
If you are the only adult covered by the policy, your share of the private health insurance policy is 100%. You are income tested to determine your private health insurance rebate entitlement based on the total cost of your health insurance policy regardless of who pays for the policy.
Example
Narelle is single, 45 years old 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, Narelle nominated to receive a premium reduction of 20%, reducing the amount paid for her insurance premiums to $800.
When Narelle lodges her tax return, her income for surcharge purposes is $83,000. Her income is below $84,000, so Narelle's private health insurance rebate entitlement is actually 30% of the total cost of her health insurance policy. Narelle received 20% upfront from her insurer through reduced premiums and receives the remaining 10% ($100) as an offset in her tax return. This offset is listed on her notice of assessment.
Example
Peta is 50 years old and is single. 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 threshold for entitlement to a 20% rebate. As Peta's employer paid 70% of the policy, and Peta elected to receive 30% as a premium reduction, Peta incurs a liability for the extra 10% rebate that she had already claimed. The liability is listed on her income tax notice of assessment.
Multiple adults covered by a policy
If a policy covers more than one adult, the premiums paid are 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. This occurs regardless of whether the adults on the policy are a part of a couple.
Each adult's share of the policy is equal to:
Total cost of policy
Number of adults covered by policy at time of payment
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Each adult is income tested when they lodge their tax return to determine their private health insurance rebate entitlement for their share of the cost of the policy. As each adult will be income tested according to their circumstances, there may be different outcomes for each adult.
Example
Mike and Elle are both single and live together in share accommodation. For convenience, Mike and Elle take out an insurance policy together and it is paid as a joint expense of the house.
The policy costs $1,000, which means they each have a $500 share in the policy. They do not claim the rebate as a premium reduction from the fund.
Mike's income is $150,000 and he is not entitled to any rebate when he lodges his tax return.
Elle's income is $55,000 and she is entitled to a 30% rebate from the government and receives $150 as a tax offset.
Example
Charlie and Zoe are divorced. However, they share the same complying private health insurance policy. The total cost of the policy is $1,000. Under their family agreement, Zoe pays the full cost of the policy.
Charlie and Zoe will be income tested on the policy in equal shares. Their share of the private health insurance policy is $500 each, and any rebate entitlement they are individually eligible for applies to their share of the policy. Zoe elects to receive a 30% premium reduction of $300 when she paid for the policy.
Charlie and Zoe are both under 65 years old. Zoe has an income of $100,000 and Charlie has an income of $135,000.
They are both assessed under the income thresholds as singles.
Zoe's individual income means that her rebate entitlement is 10% of her share of the private health insurance policy. When Zoe lodges her tax return for the year she will need to pay back 20% of her share of the rebate entitlement she claimed as a premium reduction. Zoe will incur a $100 private health insurance liability on her notice of assessment.
Because Charlie's individual income is above top income threshold he is not entitled to any rebate. Charlie will need to pay back the 30% rebate entitlement that was received for his share of the policy (regardless of the fact that Charlie did not pay for the policy). Charlie will receive a liability of $150 on his notice of assessment for his share of the private health insurance policy.
Dependent children covered by a policy
Dependent children are not income tested and their income does not count towards the income test. Anybody that is covered as a dependent child on a private health insurance policy is not considered to have a share of the cost of the policy and is not income tested to determine their entitlement to a private health insurance rebate. Dependent children under the Private Health Insurance Act 2007 include either:
- a person who is under 18 years old
- a dependent child under the rules of the private health insurer that is not 25 years old or over, and who does not have a partner.
Your private health insurer can advise you who is covered as a dependent child on your policy.
Example
Caroline and Gordon are married with a son, Archie. Archie is 19 years old, studying full time at university and earns $95,000 a year as a part-time model. Under the rules of their private health insurer, Archie is classified as a dependent child because he is studying full time. Because Archie is covered under the private health insurance policy, Archie is:
- covered as a dependent child on the family policy and his income is not taken into consideration for the family income threshold
- not income tested for any share of the family private health insurance policy because he is not entitled to a private health insurance rebate
- exempt from the Medicare levy surcharge as he has an appropriate level of private patient hospital cover.
Dependent child only policies
If a dependent child is covered by a child-only policy, they are not income tested to determine their rebate entitlement to a private health insurance rebate.
The following people are income tested to determine the private health insurance rebate - either the:
- parents of the dependent child if they are together at the end of the income year
- payer of the policy (who may or may not be the parent of the child).
Medicare levy surcharge income tests
To determine the rate of Medicare levy surcharge that applies, you use your income for (Medicare levy) surcharge purposes. The way we calculate your income for Medicare levy surcharge purposes has not changed.
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For more information about income for Medicare levy surcharge purposes, refer to:
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The Medicare levy surcharge is income tested against the following income tier thresholds:
Table 8: Income thresholds for 2012-13
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Unchanged
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Tier 1
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Tier 2
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Tier 3
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Singles
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$84,000
or less
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$84,001-97,000
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$97,001-130,000
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$130,001
or more
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Families*
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$168,000
or less
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$168,001-194,000
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$194,001-260,000
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$260,001
or more
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Rates
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0.0%
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1.0%
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1.25%
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1.5%
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* The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.
Table 9: Income thresholds for 2013-14
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Unchanged
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Tier 1
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Tier 2
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Tier 3
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Singles
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$88,000
or less
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$88,001 - 102,000
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$102,001 - 136,000
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$136,001
or more
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Families*
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$176,000
or less
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$176,001 - 204,000
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$204,001 - 272,000
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$272,001
or more
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Rates
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0.0%
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1.0%
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1.25%
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1.5%
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* The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.
There is no change to how the Medicare levy surcharge applies and any exemptions that may apply to your circumstances. The only change has been the introduction of new income thresholds and Medicare levy surcharge rates.
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For more information about the application of Medicare levy surcharge and the exemptions that may apply to your circumstances, refer to Guide to Medicare levy.
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You may have to pay Medicare levy surcharge for any period during the income year that you, your spouse, or any of your dependants:
However, from 1 July 2012, the Medicare levy surcharge rate you are charged may increase depending on your income tier.
Example
Josh is 35 years old, is single, and does not have the appropriate level of private patient hospital cover. In 2012-13, 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 2012-13, Josh's Medicare levy surcharge liability is:
- ($90,000 taxable income + $20,000 reportable fringe benefits) x 1.25%
- = $1,375.
Frequently asked questions
How is the private health insurance rebate changing?
The private health insurance rebate is the government's contribution to your expenses (that is, the premiums you pay) when being covered by private health insurance. From 1 July 2012, this rebate is income tested, that is, if you have earned too much income your rebate may be reduced or you may not be eligible to receive any rebate at all.
What is the Medicare levy surcharge?
Individuals and families on incomes above the Medicare levy surcharge thresholds, who do not have an appropriate level of private patient hospital cover, may be required to pay the Medicare levy surcharge for any period during the year that they did not have this cover. For more information, refer to 'Medicare levy surcharge' in Guide to Medicare levy.
Why did I get an Excess private health insurance reduction or rebate (rebate reduced) amount on my notice of assessment?
As your income increases, your entitlement to the private health insurance rebate may be reduced or you may not be entitled to any rebate.
The Excess private health insurance reduction or rebate (rebate reduced) is the amount of overpaid private health insurance rebate you have received.
If you have already received more rebate than you are entitled to receive (through reduced policy premiums from your health insurer or from a Medicare Service Centre), then we will claim back the excess rebate you have received when you lodge your tax return. This amount will be shown in the Debit column of your notice of assessment.
Why is my entitlement to the private health insurance rebate tested when I don't even pay for my policy?
Each adult covered by the policy will be entitled to the private health insurance rebate for their share of the policy, regardless of who pays for the policy. This means that each adult is income tested to determine their entitlement to the private health insurance rebate. Allocating shares to each adult covered by the policy ensures that any available rebate is distributed evenly.
I don't pay for my policy, am I still eligible for a rebate?
Regardless of who actually pays the premiums for your private health insurance policy, each adult covered by the policy is income tested to determine their entitlement to a private health insurance rebate.
I separated from my spouse during the year. What income should I use to calculate my rebate?
If you separated from your spouse during the financial year and remain single with no dependents as at 30 June of that year, your rebate entitlement is calculated only on your own income (that is, the single income thresholds apply).
If you separated from you from your spouse during the year but substantially maintain a dependent child you will be income tested under the family income thresholds.
I separated from my spouse during the year and I paid for the full policy for the full year. Can I claim the full rebate without sharing?
No. Even if you paid all the premiums for the policy that covers both you and your ex-spouse, you can only claim a rebate for your share of the policy. Your ex-spouse will have to claim their share.
Can my spouse claim for my policy if they are not on my policy?
No. Only the adults named on the policy are entitled to claim a private health insurance rebate for that policy and you can only claim your spouse's rebate if they are listed on the same policy as you for the same payments. If you are claiming for your spouse's share of the policy, you must agree prior to completing your tax return that one party is claiming for the couple.
I paid my private health insurance for the 2012-13 year in 2011-12. Will I still be income tested for my payments?
No. If the premiums for your 2012-13 policy were paid in a previous financial year (that is, pre-paid), then you cannot claim a rebate in your 2012-13 tax return. On the statement you receive from your insurance provider for the 2012-13 income year, there may be a 0 (zero) at label J - your share of premiums paid in the financial year, which is an indication that there is no entitlement to a rebate in 2012-13.
You still need to complete the private health insurance policy details section your tax return using the $0 values so that we can confirm you had an appropriate level of private patient hospital cover for the whole year, otherwise we may charge Medicare levy surcharge.
I'm a single parent with a child who does not permanently live with me. Is my child considered a dependent and am I eligible for the family income thresholds?
If you are a single parent with one or more dependents, you are income tested under the family income threshold amounts. A dependent is a child or sibling who you provide substantial and regular material support to on an ongoing basis. The child or sibling does not have to reside with you permanently; however, you must contribute to the maintenance and or advancement of your child on a regular or ongoing basis.
We are married/defacto but have different private health insurance policies. Are we still income tested under the family thresholds?
Yes. If you have a spouse at 30 June of the income year, you are income tested on your and your spouse's combined income under the family income thresholds. However, you cannot claim a private health insurance rebate on behalf of your spouse if you hold separate private health insurance policies.
My employer pays my private health insurance. Who is entitled to the rebate?
Only the adult or adults covered by the policy are entitled to claim the rebate. If your employer pays your health insurance, typically, you are entitled to the rebate as a reduced premium. Your employer will pay the outstanding premium.
Regardless of who pays for the policy, you will be income tested for any rebate received for that policy.
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 phiac.gov.au 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 income 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 25 years old or over and who does not have a partner.
Family
If either of the following apply to you, your rebate entitlement is income tested using the family income threshold - you:
- have a spouse on the last day of the income year, your entitlement to a private health insurance rebate is assessed on both you and your spouse's income (that is, your family income)
- are a single parent with one or more dependents.
Income for surcharge purposes
The income test for private health insurance is income for surcharge purposes. This is not the same as your taxable income.
For the purposes of assessing your private health insurance eligibility, your income for surcharge purposes is the total of the following amounts:
- Your taxable income, including the net amount on which family trust distribution tax has been paid,
- Your taxable income, including the net amount on which family trust distribution tax has been paid
- Your reportable fringe benefits, as reported on your payment summary
- Your total net investment losses, including both net financial investment losses and net rental property losses
- Your reportable super contributions, including reportable employer super contributions and deductible personal super contributions
If you are 55-59 years old, you minus 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 and your spouse's income for surcharge purpose.
Income for Medicare levy surcharge purposes
There is a different income test for the application of Medicare levy surcharge, which is known as income for Medicare levy surcharge purposes.
For more information about what is included as income for Medicare levy surcharge purposes, refer to Income for Medicare levy surcharge purposes in Income tests: an overview.
Our calculator will help you work out your income for Medicare levy surcharge purposes.
Medicare levy surcharge 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 surcharge purposes as either a single or family.
Single
For the purposes of income testing the private health insurance rebate, you are single if you did not have a spouse on 30 June.
This applies even if you had a spouse for majority of the year, as long as you were single on the last day of the income year (30 June) the single income thresholds will apply for the purposes of the income test.
If you were single on 30 June, but had dependent children, you are considered a family and will be income tested using the family income thresholds.
Spouse
Can be the same sex or opposite sex if on the last day of the income year any of the following apply:
- 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: Thursday, 6 June 2013
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