Changes to Private Health Insurance Tax Offset
From 1 July 2013, the private health insurance (PHI) tax offset no longer applies to the lifetime health cover component (LHC) of premiums.
LHC is a loading applied to hospital cover premiums if cover commenced after a person turned 30. The loading is applied at a rate of 2% for every year over 30 that the person is aged when they commence cover, up to a maximum of 70%. Eg if you first take up hospital cover at 40, your hospital cover premiums will have a lifetime loading of 20% over the standard premiums.
Prior to 1 July 2013, the PHI tax offset applied to the full premium, however this has since been reduced so the reduction is not applied to the LHC component.
These changes are on top of means testing introduced 1 July 2012.
For 2013/14, an individual with adjusted income above $88,000, or a couple with combined adjusted income above $176,000 (increased for dependent children), their PHI tax offset entitlement will be reduced, potentially to 0% if they reach the highest income thresholds.
While preparing 2013 individual income tax returns, we have seen a number of clients who have exceeded one of the thresholds and have had to repay a portion of the offset on the assessment notice.
If you have private health insurance and are approaching or have exceeded these thresholds, consider reducing your ‘benefit rate’ noted by your private health insurance provider to avoid having to repay any over claimed offset.
The Money Edge | Bundaberg