Most Australians are eligible for a private health insurance (PHI) rebate from the Australian Government to help cover the cost of their complying annual private health insurance premiums. A complying private health insurance policy is one that is offered by a registered health insurer, that provides hospital cover, general treatment cover (‘ancillary’ or ‘extras’) or combined cover. In most cases, individuals have already claimed the rebate directly through their health insurance provider in the form of a discounted premiums. If you didn’t receive this discount the eligible amount is refunded to you when you lodged you tax return.
Since 1 July 2012, an individual’s entitlement to the PHI rebate (and even the rate at which it can be claimed) has been means tested and based on an individual’s income for surcharge purposes. ‘Income for surcharge purposes’ generally includes taxable income, reportable superannuation contributions, total net investment losses and reportable fringe benefits.
While this type of tax rebate can seem quite confusing, it is simple if you opt to use the safe, secure Online Tax Australia system. Just enter all your details in our easy-to-use online worksheets, and our innovative online tax return solution will work the rest out for you. If you’d like more information on how the private health insurance rebate works, we’ve put together the guide below.
How the Private Health Insurance Rebate Works
For the 2017 income year, the PHI rebate can only be claimed by an eligible individual where each of the following two requirements is satisfied:
- The individual must be a Private Health Insurance Incentive Beneficiary (‘PHIIB’) – all adults covered by a private health insurance policy will be a PHIIB and will generally claim their share of the rebate based on their respective share, subject to the income test.
- The individual satisfies the relevant 2017 income test – subject to the relevant individual’s income for surcharge purposes, as outlined in the table below.
In addition, recent reforms were made to reduce the government’s related costs by:
- Removing the PHI rebate on Lifetime Health Cover loading (‘the LHC loading’) from 1 July 2013 – so that no rebate applies to the additional LHC loading charged at 2% for each year an individual does not take out private health insurance on the 1st of July following their 31st birthday, but then decide to take out private health insurance later in life.
- Reducing the PHI rebate percentages from 1 April 2014 – annually adjusting downwards the traditional PHI rebate percentages (based on the age of the oldest person on the policy) of 30%, 35% and 40% by a single rebate adjustment factor.
- Pausing indexation of the 3-tier income thresholds for the PHI rebate and the Medicare levy surcharge – Recent amendments have paused the income thresholds that determine the three income tiers for the PHI rebate (and the Medicare levy surcharge).
Ultimately the three-tier income thresholds applicable for the 2017 income year, as outlined in the table below will be applicable also for the 2018 income year.
Where an individual does not have an appropriate level of private patient hospital cover, they will be liable for the Medicare levy surcharge at the rate of 1% (for Tier 1 income earners), 1.25% (for Tier 2 income earners) and 1.5% (for Tier 3 income earners).
Your Annual Policy Statement, issued by your health insurance provider, will provide all the details required to complete the information in the tax return.
The tiers are based on your income for Medicare Levy surcharge purposes. For more information, visit ATO’s Medicare Levy Surcharge Page.
The Private Health Insurance Rebate and Lifetime Health Cover
Lifetime Health Cover is a financial loading that is applied on top of your hospital private health insurance premium. This loading is charged at a rate of 2% for every year you are aged over 30 when you take out hospital cover, up to a maximum of 70%. The Lifetime Health Cover loading will only be removed once you have held hospital cover and paid the loading for ten continuous years.
If you currently pay a Lifetime Health Cover loading, the rebate does not apply to the Lifetime Health Cover component of your hospital cover premium. As such, you still receive the rebate on the standard component of your hospital cover.
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Contact Online Tax Australia for Help with Your Private Health Insurance Rebate
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