ATO Interpretative Decision

ATO ID 2004/368

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the taxpayer entitled to an amount greater than the private health insurance tax offset to which they are entitled under section 61-340 of the Income Tax Assessment Act 1997 (ITAA 1997), where they would have been eligible for a higher incentive amount for the policy under the former Private Health Insurance Incentives Act 1997 (PHIIA 1997)?

Decision

Yes. The taxpayer is entitled to an amount greater than the private health insurance tax offset to which they are entitled under section 61-340 of the ITAA 1997 where they would have been eligible for a higher incentive amount for the policy under the former PHIIA 1997.

Facts

During the 2003 year of income the taxpayer had an appropriate private health insurance policy for which they were entitled to a private health insurance tax offset under section 61-335 of the ITAA 1997. The taxpayer had not taken the private health insurance tax offset by way of premium reduction from the fund or direct payment from Medicare.

The policy was in existence before 1 January 1999 and provided appropriate private health insurance cover for the 1999 year of income, under section 3-2 of the PHIIA 1997.

The annual premium payable by the taxpayer for the 1999 year of income was above the minimum threshold amount outlined in section 3-2 of the PHIIA 1997.

The taxpayer's 1999 taxable income, based on the income test applicable for their particular policy, was below the maximum amounts specified in sections 3-3 and 3-4 of the PHIIA 1997.

The taxpayer's current year taxable income was in excess of the maximum amounts specified in these provisions.

The incentive amount calculated by the taxpayer under section 61-345 of the ITAA 1997, is greater than 30 per cent of the premium paid for the 2003 year of income.

Reasons for Decision

Section 61-335 of the ITAA 1997 allows a taxpayer to claim a tax offset for a premium, or an amount in respect of a premium paid under a private health insurance policy.

The method of calculating a taxpayer's entitlement after the 1999 year of income is outlined in subsections 61-340(4) to (8) of the ITAA 1997. According to the above subsections, a taxpayer who was registered or was eligible to apply for registration before 1 January 1999 under the former Private Health Insurance Incentive Scheme (PHIIS), is entitled to the greater of either the incentive which would have been allowable under the PHIIS, or the present tax offset (based on 30 per cent of the yearly premium payment).

To be eligible for registration under the PHIIS, certain conditions needed to be satisfied under section 3-1 of the PHIIA 1997, including the following:

•

the health insurance policy was in existence before 1 January 1999 and provided appropriate private health insurance cover for the 1999 year of income;

•

the annual premium for the 1999 year of income was above the minimum premium threshold amount, and

•

the relevant taxable income test, based on the cover provided by the policy, was satisfied for the 1999 year of income.

Subsections 61-340(4) to (8) of the ITAA 1997 are linked to the provisions of the PHIIA 1997. Therefore the conditions outlined in section 3-1 of the PHIIA 1997 relating specifically to the 1999 year of income, must be satisfied to determine if a taxpayer can claim a greater entitlement under the PHIIS for later income years.

In this case, the taxpayer meets the conditions for entitlement to the incentive amount including the relevant income test, based on taxable income for the 1999 year. As the incentive amount in respect of the private health insurance policy is greater than 30 per cent of the premium payment, the taxpayer is entitled to claim the incentive amount for the 2003 year of income, under section 61-340 of the ITAA 1997.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 61-335
   section 61-340
   subsection 61-340(4)
   subsection 61-340(5)
   subsection 61-340(6)
   subsection 61-340(7)
   subsection 61-340(8)
   section 61-345

Keywords
30% Private Health Insurance Rebate
Private health insurance offsets
Private health funds
Private health insurance incentives

Business Line:  Business and Personal Taxes Centre of Expertise

Date of publication:  7 May 2004

ISSN: 1445-2782