As Tax Agents we can't advise whether or not you 'need' private health insurance, but we can guide you as to the impact a policy may have at tax time.
Over 30? - read to the end!!
How it impacts your tax calculation
Medicare Levy is 2% of income paid by most Australians, although it's reduced for very low income earners. The Medicare Levy Surcharge (MLS) is an extra 1 - 1.5% of adjusted income when there is not enough or no hospital cover held for your family. Hence you can think of MLS as where you are "penalised for having no private health insurance".
Remember - it's private patient hospital cover, for you and the family. This includes your spouse/defacto, and all your children under 21 (or 24 if students) who you 'maintain', including child support.
Ambulance or 'extras' alone, or leaving anyone off the policy, won't cut it.
Your income is also relevant, but recalculated
For 2023-2024, the income threshold where MLS kicks in is $93k for singles or for families, $186k + $1,500 per dependent child after their first. It starts at 1% and steps up over three Tiers. The income figure used is not always equal to your taxable income, as certain amounts of superannuation, fringe benefits, trust and foreign income are added on, and losses from rental property or financial investments are ignored.
If you know your income is well below the $93k/$186k amount for the 2023-2024 year, you probably don't need to worry about paying MLS. However if you are above that number, we've set out some examples to help you see how it may impact you:
Example 1 -
Joey's salary is $95,000 and their employer makes additional super contributions of $4,500 a year for them. They have a rental property that runs a tax loss of $6k each year. They are single and healthy and haven't held Hospital cover for a number of years.
Joey's taxable income will be $95 - 6 = $89k
Joey's income for Medicare Levy Surcharge will be $89k + $6k + $4.5k = $99.5k
This puts Joey in Tier 1 and will mean they need to pay 1% of the MLS income when their return is assessed - or about $995 in "extra tax".
Example 2 -
Sam and Alex have 3 children at school. Sam is a successful pet psychiatrist, and Alex is a busy real estate agent. Sam's share portfolio earned $2k less than the interest on the loan used to buy the shares, and Alex's employer gives them a company car with Fringe Benefit value of $16,000 for the year. Alex also inherited some real estate and receives a share of the rent from the properties on which there is no mortgage. Sam and Alex opted out of hospital cover after their youngest child was born, but have a policy for the whole family to cover dental work and physiotherapy.
Taxable Income: Sam $90k psychiatry income - $2k share investment loss = $88k
Alex: Real estate salary + commissions $125,000 + Rental property income $65,000 = $190k
Note that if Sam and Alex were each single, Sam would have no MLS applicable, but Alex would.
MLS Income: Sam $88k + 2k = $90k
Alex: $190k + fringe benefit $16k = $206k
Family MLS Income = $90k + 206k = $296k
This puts the family in Tier 3, where the MLS is 1.5%. the Extras cover for dental and physio does not meet the hospital cover requirements even though the whole family is on the policy.
MLS for Sam = 1.5% of $90k = $1,350
MLS for Alex = 1.5% of $206k = $4,440
Medicare Levy Surcharge for the family = $5,790
Timing is Everything
This does not impact your tax directly, but it is something to consider when deciding whether and when to sign up for Private Health Insurance.
If you are currently not covered by private health hospital insurance, and are over 31 years of age, there will be an additional cost in your premium for the 'Lifetime health cover loading' for the first 10 continuous years once you take out suitable insurance. This is an "incentive" by the government to obtain and keep up health insurance (aka a penalty for not being able to afford it through your 30's!). The older you are when you take out the cover, the more the loading will be, up to an extra 70%, which is not eligible for any government rebate on the premium.
If you're weighing it up...
Don't be afraid to reach out for a rough assessment of the tax difference so you can make a fully informed decision.
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