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  • Private health insurance rebate eligibility

    To claim the private health insurance rebate, regardless of your residency status in Australia, you must:

    • have a complying health insurance policy with an Australian-registered health insurer
    • be eligible for Medicare
    • be a private health insurance incentive beneficiary
    • have an income for surcharge purposes that is less than the Tier 3 income threshold.

    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.

    Note: If your private health insurance provider is an overseas provider that is not registered in Australia, you will not be eligible for any rebate on your policy.

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    Private health insurance incentive 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), 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.

    Income for surcharge purposes – less than Tier 3

    Income for surcharge purposes is used to test your eligibility for the private health insurance rebate. It is not the same as your taxable income.

    To be eligible for the private health insurance rebate, your income for surcharge purposes must be 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)
    • 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 between your preservation age and 59 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 that of your spouse, using the abovementioned criteria.

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    If someone else pays your premiums

    Regardless of who pays the premiums for your private health insurance policy, each adult covered by the policy is income tested to determine their entitlement to a rebate. If you share the policy, you will be income tested on your share. Allocating shares to each adult covered by the policy ensures that any available rebate is distributed evenly.

    If your employer pays for your private health insurance, you are generally entitled to the rebate as a reduced premium, and your employer will pay any outstanding premium.

    Example

    You may have a salary sacrifice arrangement under which your employer pays for your private health insurance. Even though your employer pays your premiums, you will be income tested to determine your entitlement to a private health insurance rebate. If an incorrect rebate (that is, premium reduction) is claimed, it will be corrected through your tax return.

    End of example

    Annual rebate adjustment

    All private health insurance rebate percentages are adjusted annually on 1 April by a 'rebate adjustment factor'.

    For example, on 1 April 2017 the 26.791% age-based rebate percentage was reduced to 25.934%.

    The rebate adjustment factor is a percentage of the increase in the consumer price index (CPI) and the average annual premium price increase. It is calculated by the Department of HealthExternal Link.

    The adjusted rebate percentages are applied to premiums paid on or after 1 April. This means your rebate percentage for premiums paid (excluding lifetime health cover loading) before 1 April will be different to your rebate percentage on or after 1 April.

    The rebate percentage between 1 July and 31 March (Period 1) is multiplied by the rebate adjustment factor to get the rebate percentage for the period 1 April – 30 June (Period 2). As a result, your rebate percentage for Period 2 may be less than Period 1.

    You don’t need to do anything as a result of these changes. If you claim your rebate as a premium reduction, your health insurer will adjust your rebate percentage and rebate amount. If you claim your rebate as a tax offset, we will apply the adjusted rebate percentages to determine your correct private health insurance tax offset.

    You don’t need to contact your health insurer to change your rebate percentage from 1 April. However, you can choose to contact your insurer to nominate a new rebate amount if you think your income will result in you being entitled to a lesser rebate when you lodge your tax return.

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    When a premium is paid

    When your private health insurance premiums are paid is important when working out your rebate amount.

    Payment of your premium occurs when your private health insurer receives the amount you paid. This is the time your insurer physically receives the amount, not the date the payment was made to the insurer, or when the insurer allocated the amount to your account. Table 6 shows when a premium is paid, for different payment types.

    Table 6: When a premium is paid (by payment type)

    Payment type

    Premium is paid

    Cash

    When the cash is received by the private health insurer

    Electronic transfer of funds

    When the funds are credited to the private health insurer’s account

    Money order or bank cheque

    When the money order or cheque is received by the private health insurer, unless the money order or cheque is dishonoured

    You may pay your insurer directly, or you may pay through a legal agent or your employer.

    If you make a payment to a legal agent of your private health insurer, the payment of the premium occurs when the agent receives your premium payment – for example, if your insurer has an agreement for Australia Post to receive payments on their behalf.

    If you have an arrangement with your employer to pay the premium, the premium payment occurs when your private health insurer receives the amount your employer paid.

    Note: If your employer withholds an amount for a private health insurance premium, the amount is paid to your insurer when the insurer receives the payment from your employer. This may be a different date to when your employer withholds the amount from you.

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    Travelling overseas

    If you cancel your private health insurance while travelling overseas, you may be liable to pay the MLS. You should contact your health fund to work out the amount of premium you expect to save by cancelling or suspending your cover and compare that to the surcharge you may have to pay.

    Travel insurance is not private patient hospital cover for the purposes of the MLS. Similarly, private patient hospital cover does not include cover provided by an overseas fund.

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    Claiming your rebate

    If you meet the eligibility requirements for a private health insurance rebate, you can claim your rebate as either:

    • a premium reduction which lowers the policy price charged by your insurer
    • a refundable tax offset when you lodge your tax return.

    You will need to lodge a tax return if you think you are eligible to claim the private health insurance rebate and you have not claimed any or all the rebate from your insurer as a premium reduction.

    Example: Claiming the private health insurance rebate

    Peter is single with no dependants, 45 years old, and earned $100,000 in 2016–17. He has a private health insurance policy that costs him $2,000 per year. Peter's income level entitles him to a 17.861% rebate on premiums paid before 1 April 2017, and 17.289% on premiums paid on or after 1 April 2017. He makes payments monthly.

    In claiming his entitlement to the rebate, Peter can choose to either:

    • receive 17.861% premium reduction from his health insurer for premiums paid between 1 July 2016 and 31 March 2017, and 17.289% premium reduction for premiums paid between 1 April 2017 and 30 June 2017, or
    • claim the rebate as a refundable tax offset in his tax return – we will calculate his rebate entitlement based on his income for surcharge purposes.
    End of example

    When you lodge your tax return, we will test your income against the income thresholds to determine the level of rebate you are entitled to receive. If there was more than one adult on your private health insurance policy when the premiums were paid, you will be tested on your share of the policy.

    Depending on how you claimed the rebate, and the percentage you claimed, this may result in a tax liability and/or a tax offset.

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    See also:

    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 will be listed on your notice of assessment as an Excess private health insurance refund or reduction (rebate reduced).

    Example: Claiming too much rebate

    Toby is single and 67 years old in 2016–17. He has a complying health insurance policy. He paid premiums monthly and did not pay any lifetime health cover (LHC) loading.

    On 1 July 2016, Toby nominated to receive 31.256% private health insurance rebate as a premium reduction to the cost of his policy. On 1 April 2017, the rebate percentage was adjusted and, as a result, the health insurer provided Toby with a premium reduction of 30.256% for premiums paid from 1 April 2017 to 30 June 2017.

    Toby paid premiums monthly, which adds up as follows:

    • $1,031 between 1 July 2016 and 31 March 2017 after premium reductions of $469
    • $370 between 1 April 2017 and 30 June 2017 after premium reductions of $160.

    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 67 years old is:

    • 22.326% of premiums paid between 1 July 2016 and 31 March 2017
    • 21.612% of premiums paid between 1 April 2017 and 30 June 2017.

    As Toby received more rebate than what he was entitled to, he incurred a $179 liability, which is listed on his notice of assessment as an Excess private health insurance refund or reduction (rebate reduced).

    End of example

    See also:

    If you haven’t claimed the full rebate

    If you have not received your full private health insurance rebate entitlement, we calculate the rebate amount you are entitled to, which becomes payable to you as a refundable tax offset when we assess your tax return. The tax offset is added together with any other tax offsets that you receive and will appear as a credit on your notice of assessment.

    Example: Not claiming the full rebate

    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 $106,000 in 2016–17. 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 8.930% on her premiums, which equates to $134. She pays the remainder of $1,366 on 1 July 2016.

    Donna does not end up getting her promotion, and when she lodges her 2017 tax return, her income for surcharge purposes is calculated as $85,000. Donna’s income is below the base tier income threshold, meaning she is eligible for a 26.791% private health insurance rebate. This means Donna is entitled to a total rebate of $402 for her policy.

    Because Donna only received a $134 premium reduction from her insurer, she receives an additional $268 as a refundable tax offset when she lodges her tax return. The offset is listed on her notice of assessment.

    End of example
    Last modified: 29 Jun 2017QC 49964