Medicare Levy - Beware the Surcharge
5 February 2014
The Medicare Levy Surcharge (MLS) is levied on Australian taxpayers who do not have private hospital cover for themselves and their dependents, and who earn above a certain income. The surcharge aims to encourage people to take out private hospital cover, and where possible, to use the private system to reduce the demand on the public Medicare system.
If you or any of your dependents do not have an appropriate level of private patient hospital cover for any period during the financial year, you may be liable (depending on your taxable income) to pay an additional surcharge of up to 1.5%.
Some people take out private health insurance simply to avoid the MLS. But even if just one of the conditions to avoid being liable for the levy is not met during that financial year, for example you forget to register a new baby with your private health fund, then for MLS purposes, the effect is that you may well have had no cover at all.
Defining your dependents
For MLS purposes, your dependants (regardless of their income) include:
- Your spouse, even if he/she worked during the financial year or had their own income
- Children under 21 years old
- Children 21 to 24 years old who are full-time students
- Children for whom you are paying child support while these children do not reside with you
Your 'spouse' includes another person (whether of the same sex or opposite sex) who:
- You were in a relationship with that was registered under a prescribed state or territory law; or
- Although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.
Appropriate level of private patient hospital cover
An appropriate level of private patient hospital cover is cover provided by an insurance policy issued by a registered health insurer for some or all hospital treatment provided in an Australian hospital or day hospital facility which has an excess of:
- $500 or less (for a policy covering only one person), or
- $1,000 or less (for a policy covering more than one person).
ATO data matching
The Australian Taxation Office (ATO) uses an information matching system to compare information provided by health funds and government agencies with details provided in your tax return to determine if you are liable to pay the MLS.
Your private health insurer provides the ATO with a list of the family members covered by the policy. If there is a discrepancy between this information and that provided in your tax return or to other government agencies, the ATO will advise that you may liable to pay the MLS unless you can prove otherwise.
Currently, you have to pay the surcharge if you are:
- A single person with an annual taxable income for MLS purposes greater than $84,000 in the 2012-13 financial year or $88,000 in the 2013-14 financial year; or
- A family or couple with a combined taxable income for MLS purposes greater than $168,000 in the 2012-13 financial year or $176,000 in the 2013-14 financial year. The family income threshold increases by $1,500 for each dependent child after the first; and
- Do not have an approved hospital cover with a registered health fund.
The surcharge income thresholds are indexed annually.
Check your policy
To avoid any MLS liability, it is important to check your private health insurance policy to ensure:
- It covers you, your spouse and dependent children.
- You have included your newborn child.
- Any children aged over 18 but under 21, and those in full-time study and aged under 24, are included (even if they have left home).
- The excess on your policy is no greater than $500 for singles or $1,000 for families.
- The policy is with a registered health fund and includes approved hospital cover.
Some situations to be especially mindful of are where:
- Your child (aged over 18) will be receiving a distribution from your family trust - consider if he or she is covered under their own health insurance policy or your policy.
- If your income is over the relevant thresholds for MLS (http://www.ato.gov.au/Individuals/Medicare-levy/Medicare-levy-surcharge/ ) ensure that you, your spouse and all your dependents have an appropriate level of private patient hospital cover.
If you would like further information please talk to your local Boyce Accountant.