The government has introduced changes to the private health insurance rebate and the Medicare levy surcharge. From 1 July 2012, the private health insurance rebate and the Medicare levy surcharge will be income tested against three new income tier thresholds.
Higher income earners will receive less private health insurance rebate or, if they do not have the appropriate level of private patient hospital cover, the Medicare levy surcharge may increase.
The ATO will determine the amount of your private health insurance rebate entitlement when you lodge your income tax return. This may result in a refund or a liability for you.
The private health insurance rebate and Medicare levy surcharge will be income tested against the income tier thresholds in the below table. Your rebate percentage entitlement will be reduced as your income tier rises.
Unchanged Tier 1 Tier 2 Tier 3
Singles
Families
$84,000 or less $84,001-97,000 $97,001-130,000 $130,001 or more
$168,000 or less $168,001-194,000 $194,001-260,000 $260,001 or more
Rebate
Aged under 65
Aged 65-69
Aged 70 or over
Rate
30%
35%
40%
0.0%
20%
25%
10%
15%
30% 20%
Medicare levy surcharge
1.0% 1.25%
0%
0%
0%
1.5%
Note: The income tiers are indexed annually.
There will be no change in the methods for claiming your private health insurance rebate. You can claim your private health insurance rebate as a:
 premium reduction to your policy price with your insurer
 refundable tax offset through your income tax return
 direct rebate refund from Medicare.
There is also no change to the:
 type of complying private health insurance cover you need to be eligible for the rebate
 level of private patient hospital cover required to avoid paying the Medicare levy surcharge.
The income test used for both the Medicare levy surcharge and entitlement to the private health insurance rebate is called Income for (Medicare levy) surcharge purposes .
To work out your income for Medicare levy surcharge purposes, refer to Income for (Medicare levy) surcharge purposes calculator .
If you are single on the last day of the income year and have no dependants, you will be income tested against the single income tiers.
If you have a spouse on the last day of the income year, you will be income tested on the combined

family income of you and your spouse under the family income thresholds.
If you are a single parent with one or more dependants , you will also be income tested under the family income thresholds.
If as a couple or a single parent you have two or more children, the family income threshold is increased by $1,500 for every MLS dependent child after the first child. For example, if you have three dependent children, your family income threshold will increase by $3,000.
When you lodge your income tax return, we will calculate your income for Medicare levy surcharge purposes and determine your private health insurance rebate entitlement .
If you have claimed too much private health insurance rebate, as a premium reduction or through
Medicare, we will recover the amount as a tax liability. This liability will be listed on your Notice of
Assessment .
Example
Toby is a single 67 year old and has a complying private health insurance policy at a cost of
$1,000. Toby received a 35 per cent private health insurance rebate of $350 as a premium reduction to the total cost of his policy.
When Toby lodges his income tax return his income for (Medicare levy) surcharge purposes is calculated as $95,000, which makes Toby a Tier 1 income earner.
As a Tier 1 income earner over 65 Toby is only eligible for a 25 per cent private health insurance rebate of the cost of his policy. Because Toby was only eligible for a $250 premium reduction he will incur a $100 private health insurance liability which will be listed on his notice of assessment.
If you have not received your full rebate entitlement, we will calculate any outstanding amount and credit this to you as a refundable tax offset when you lodge your income tax return. The refundable tax offset will be listed on your Notice of Assessment .
Example
Donna is 35 years old and has a complying health insurance policy worth $1,500. Donna has paid her yearly premium in full and has chosen to claim a 10 per cent private health insurance rebate of $150 from Medicare.
When Donna lodges her income tax return, her yearly income for (Medicare levy) surcharge purposes is calculated as $75,000. Donna's income falls below the first income tier threshold, meaning she is eligible for a 30 per cent private health insurance rebate of $450 of the total cost of the policy.
As Donna only received a $150 rebate from Medicare she will receive an additional $300 as a refundable tax offset.
The payer of the policy will no longer be automatically entitled to the rebate. Each adult covered by the policy will be responsible for their share of the policy.
If you are the only person covered by the policy, your share of the private health insurance policy is 100 per cent, or the total cost of the policy.
If there is more than one adult on a policy, the share of the private health insurance policy for each adult will always be divided into equal shares regardless of who paid the premium. Each adult's share of the policy is equal to:
Total cost of policy
Number of adult(s) covered by policy
Each person will then receive the amount of rebate or liability that applies to their share of the private health insurance policy.
Example
Charlie and Zoe are divorced however they share the same complying private health insurance policy. The total cost of the policy is $1000.
Their share of the private health insurance policy is $500 each, and any rebate entitlement they are individually eligible for will apply to their share of the policy.
Charlie and Zoe are both under 65 years of age. Zoe has an income of $100,000 and Charlie has an income of $30,000.
They are both assessed under the income tier thresholds as singles.
Zoe's individual income places her in the Tier 2 income threshold where her rebate entitlement is 10% of her share of the private health insurance policy.
Charlie's individual income is below the first income tier threshold and his rebate entitlement will remain at 30% of his share of the private health insurance policy.

Dependent children covered by a complying health insurance policy are not eligible for the private health insurance rebate. Only adults under the policy are eligible for their share of the private health insurance rebate.
Your private health insurer will be able to advise you who is listed as a dependent child on the policy.
If you have a spouse on the last day of the income year, and you are covered by the same complying private health insurance policy, you can choose to receive their share of the private health insurance rebate entitlement, which may be a tax offset or a liability. You choose to claim the tax offset or liability when you complete your income tax return. You may decide to do this if your spouse is not required to lodge an income tax return or if you and your spouse lodge your income tax returns at separate times.
One person in the relationship can choose to claim the private health insurance rebate for their spouse but they must inform the other spouse, and have agreement about who is claiming the whole rebate.
Example
Leo and Sam are a de facto couple who live together and share a complying private health insurance policy. They are both under 65 years old. The total cost of their policy is $4,000, but they have received a 30% premium reduction and paid $2,800 for their policy as a result.
Sam earned $180,000 as a financial consultant, while Leo spent the year undertaking volunteer work and did not earn any income. Their family income of $180,000 places them into the family
Tier 1 threshold where the private health insurance rebate available is 20% of the total premium.
Leo and Sam received a 30% premium reduction of $1,200. Based on their income test, they are in the family Tier 1 threshold and only entitled to a 20% reduction of $800. This means that
Leo and Sam have a combined (private health insurance rebate) liability of $400, and are each liable for $200.
Since Leo did not earn any income, he does not need to lodge an income tax return. Sam and
Leo agree that when Sam is completing his income tax return he will be income tested for his and Leo's rebate entitlement when he lodges his income tax return. This means that Sam will receive Leo's share of the liability.
If you and your partner decide to claim the private health insurance rebate separately you will still be income tested using the family income thresholds to determine the appropriate percentage of your private health insurance rebate.
Example
Abby and Jed are in a de facto relationship and are both under 65 years of age. They have a combined income of $170,000 and their private health insurance policy costs $3,000, which they have paid in full without any premium reduction. Their combined income places them into income Tier 1, where they are entitled to a 20 per cent rebate as a couple ($600).
Even though they claimed the private health insurance rebate separately through their income tax return, they will be income tested using the family income threshold. Therefore they will each receive a tax offset of $300.
From 1 July 2012, the Medicare levy surcharge will be income tested against the following income tier thresholds:
Unchanged Tier 1 Tier 2 Tier 3
Singles $84,000 or less $84,001-97,000 $97,001-130,000 $130,001 or more
Families $168,000 or less $168,001-194,000 $194,001-260,000 $260,001 or more
Rates 0.0% 1.0% 1.25% 1.5%
The rules for how the Medicare levy surcharge applies will not change. However, the Medicare levy surcharge rate you will be charged may increase depending on the income tier that applies to your circumstances.
Example
Josh is 35 years old, is single, and does not have the appropriate level of private patient hospital cover. In 2012-13 Josh's taxable income is $90,000.
When Josh completes his income tax return he also completes the income test section of the income tax return and declares the following: o reportable fringe benefits of $20,000 o net investment losses of $7,000.

Josh's total income for Medicare levy surcharge purposes is $117,000, which makes him a tier
2 income earner for calculating the Medicare levy surcharge. The amount of Medicare levy surcharge is only calculated against taxable income and reportable fringe benefits.
In 2011-12, Josh's Medicare levy surcharge liability is:
($90,000 taxable income + $20,000 reportable fringe benefits) x 1%
= $1,100
In 2012-13 Josh's Medicare levy surcharge liability will be:
($90,000 taxable income + $20,000 reportable fringe benefits) x 1.25%
= $1,375
You may have to pay Medicare levy surcharge for any period during the year that you, your spouse, or any of your dependants:
 did not have an appropriate level of private patient hospital cover for the whole income year, and
 your income for Medicare levy surcharge purposes is above the Tier 1 threshold.
Example
Claudia and Danny live together in a de facto relationship and they do not have any dependent children. Claudia does not have private health insurance, but Danny has an appropriate level of private patient hospital cover that covers him only.
Claudia and Danny's income will be determined under the family income tiers. If their combined income is over $168,000, they will both be liable for the Medicare levy surcharge. This is because both Claudia and Danny need to have an appropriate level of private patient hospital cover to avoid paying the Medicare levy surcharge.
For more information see When do you have to pay the surcharge?
The way you calculate your income for Medicare levy surcharge purposes has not changed.
For more information about what is included as income for Medicare levy surcharge purposes, see Income for (Medicare levy) surcharge purposes .
Adult
An adult is any person that is not a dependent child under the Private Health Insurance Act 2007 and is covered by the private health insurance policy.
Complying private health insurance policy
Your health insurance policy is complying if:
 it is provided by a registered health insurer
 it provides hospital or general (also known as 'extras') cover or combined hospital and general cover, and
 it meets other complying private health insurance policy requirements.
If you are unsure, your private health insurer can tell you whether your policy meets these conditions.
The Private Health Insurance Administration Council website at www.phiac.gov.au
can tell you whether your insurer is a registered health insurer.
Dependent child for family income testing
For the purposes of the definition of a family for the private health insurance rebate, a dependent child is any of the following:
 your child under 18 years old
 your child who is classified as a dependant under the private health insurer's rules and under
25 years old and does not have a partner
 your sibling who is under 25 years old, does not have a partner and is dependent on you for economic support on any day of the year.
To claim the family thresholds as a single parent you must have contributed in a substantial way to the maintenance of the dependent child during the financial year.
Dependent child under the Private Health Insurance Act 2007
A dependent child for the purposes of the Private Health Insurance Act 2007 is a person:

 under 18 years old; or
 a dependent child under the rules of the private health insurer that is not aged 25 years or over and does not have a partner.
MLS dependent child
An Australian resident child who:
 is your child under 21 years old, or
 is your child who is 21 years old or older and under 25 years old who are full-time students.
Premium reduction
Reducing the amount paid for your private health insurance policy by claiming the private health insurance rebate directly through your insurer.
Private health insurance rebate entitlement
The amount of private health insurance rebate to which you are entitled based on your income for
Medicare levy surcharge purposes as either a single or family.
Spouse
Same sex or opposite sex, on the last day of the income year, any of the following apply:
 you are legally married
 you are in a relationship that is registered under a prescribed state or territory law
 you live with another person on a genuine domestic basis as a couple.
.
Last Modified: Wednesday, 4 April 2012
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