In terms of tax, it is beneficial to get PHI when
- you begin to incur Medicare levy surcharge at Tier 1 Single or Tier 1 family (scroll down to the bottom for more info on Tiers).
- If you are on the base tier Single or base tier Family, then there isn't much tax benefit in getting private health insurance.
In saying that, if you do decide to get PHI anyway + have an income for surcharge purposes less than tier 3, you would be eligible for a rebate/reduction in the cost of your PHI. Read more on that here.
Otherwise, proceed to read below.
The Medicare levy surcharge (MLS) is levied on Australian taxpayers who do not have an appropriate level of private patient hospital cover and earn above a certain income.
MLS is designed to encourage individuals to take out private patient hospital cover, and, to use the private hospital system to reduce demand on the public Medicare system.
We use a special definition of income (called income for MLS purposes) to determine whether you are liable to pay the MLS, and the rate of MLS you will have to pay. This income is different to your taxable income.
The MLS rate of 1%, 1.25% or 1.5% is levied on your taxable income, total reportable fringe benefits, and any amount on which family trust distribution tax has been paid.
Income for Medicare levy surcharge purposes
Income for Medicare levy surcharge (MLS) purposes is used to determine whether you are liable to pay the MLS and the rate of the MLS that you will have to pay.
If you have a spouse, your combined income for MLS purposes will be used.
Your income for MLS purposes is the sum of the following items for you (and your spouse, if you have one):
- taxable income
- include the net amount on which family trust distribution tax has been paid
- do not include any assessable First Home Super Saver (FHSS) released amount for the income year under the FHSS scheme
- reportable fringe benefits
- total net investment losses (includes both net financial investment losses and net rental property losses)
- reportable super contributions (includes reportable employer super contributions and deductible personal super contributions).
- if you have a spouse, their share of the net income of a trust on which the trustee must pay tax (under section 98 of the Income Tax Assessment Act 1936) and which has not been included in their taxable income.
If you had exempt foreign employment income, and your taxable income is $1 or more, add your exempt foreign employment income to your taxable income.
If you (or your spouse) are between your preservation age and 59 years old and received a super lump sum, reduce income for MLS purposes by any taxed element of the lump sum, other than a death benefit, that does not exceed your (their) low rate cap.
If you have two or more dependent children, the family income threshold is increased by $1,500 for each dependent child after the first child.