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"Healthy" Tax Planning (Rebates and means testing)

06 July 2012

The financial year end is nearly upon us which means tax planning considerations should be front of mind with your trusted advisors.  It is timely to raise awareness on what clients may need to do to beat the private health insurance rebate means test before 1 July 2012. This may involve paying premiums upfront in 11-12 (in respect of 12-13 cover) and then reverting back to monthly direct debits from July 2013 to potentially save your family up to $1,000.  

Under the proposed changes, individuals earning above $83,000 and families on more than $166,000 will be hit by a new progressive means test.  The means test will phase out the current 30% health insurance rebate to zero for singles earning more than $129,000 a year and families above $258,000.

Private health funds are not permitted to advise their customers on how to take advantage of the once off window of opportunity (to avoid this means testing) as this is viewed taxation advice by the regulatory bodies.  It is important to clarify, not all tax rebates are refundable rebates.  The private health insurance rebate and medical expense rebates are only available where clients have taxable income and are required to pay tax.  The rebates are not refundable tax credits.  Each client’s personal circumstances should be taken into consideration.

Private wealth high income earners are predicted to be financially better off if they continue to retain basic hospital cover.  By reducing cover, clients will have the high Medicare Levy Surcharge as well as the Medicare Levy most clients pay.  We urge you to discuss with your private health insurance provider before reducing cover.   

If clients are in the high income range bracket, an alternative way to save is to pre-pay the yearly premium before 30 June 2012.  Due consideration to your projected taxable income position for 11-12 should be taken into account by your advisor before the prepayment. Clients in certain situations, will benefit from the existing rebate and avoid the means test for another 12 months.   As reported in recent media coverage, Health Minister Tanya Plibersek confirmed the pre-payment plan is an option for the first year only (i.e. pre-pay health insurance in 11-12 in respect of 12-13).  

Fortunately, the medical expense rebate is not means tested.  However, the medical expense rebate is often dismissed due to taxpayers not tracking out of pocket net medical expenses exceeding $2,000 for the family.   We recommend clients request 11-12 tax statements from Medicare, their private health insurance provider and their local pharmacist as soon as possible after 1 July 2012.  We also suggest our clients scan credit cards and shoe boxes for receipts relating to eligible out of pocket net medical expenses that they may have been unable to claim through Medicare or their private health insurance provider. Eligible medical expenses include out of pockets for GP consultations, specialists, optometry, dental, physio, prescription medicines/lenses, IVF treatment and laser eye surgery.    

Please contact Kylie Lamprecht, Business Services Advisor (07) 3222 8437 if you would like to discuss the tax rebates further.