Health Funds and Tax Savings

The question has been raised many times, do I need to be in a health fund in order to save on tax. These days, the answer is not always clear cut.

The way the system works, if you are single and earn over $70,000 per year, and do not have Hospital Cover through a Health Fund, then you will be taxed an extra 1% of your taxable income. The cost of being in a health fund, and you only need Hospital cover to avoid the Medicare Levy Surcharge, can be less than $10.00 per week, or around $500 per annum. This can be worth the effort to save over $700 in extra tax.

If you are married, or one half of a couple, then the total partnership income must be less than $140,000 to avoid the 1% Medicare levy surcharge.

One anomaly with this is if you are in a fund and earn $150,000 per annum, then no Medicare Levy Surcharge applies. However, if you get married and your new spouse is not in a fund, and, if your spouse lodges a tax return and indicates that they are not in a health fund then, unless you have already changed the fund cover from single to Family, you could be hit with an extra $1,500 tax bill because the tax return contains the following words: “For the whole period 1 July 20## to 30 June 20## were you and all your dependants (including your spouse) – if you had any – covered by private HOSPITAL cover?”

This means that unless you have family cover, or each member of the family has single cover, you will be liable for the 1% surcharge.

In addition to this, when you join a health fund, you can agree to pay an excess on admission to Hospital. This excess can be any amount agreed to by the fund, however the Tax Office takes a dim view of any excess deemed too large.

To quote the Tax Office website, “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. However, an insurance policy for hospital cover taken out after 24 May 2000 that has an ‘annual front-end deductible’ amount or excess of more than $500 in the case of a policy covering only one person, or more than $1,000 for all other policies, does not provide private patient hospital cover for Medicare Levy Surcharge purposes.

So if you agree to pay an upfront fee on admission to Hospital, and that fee exceeds the $500 (single) or $1,000 (family) threshold, then you are deemed by the tax office to not be in a health fund and will be liable to the 1% surcharge.

Les Coulcher is the principal owner of Coulcher’s Personal Accounting & Taxation Services, the Premier accounting firm in Camden and he believes his staff offer the best personal accounting and taxation services in the region. The business consists of five qualified accountants and support staff.

“We pride ourselves on providing a personal service which includes home visits as necessary and bookkeeping services at the client’s premises. Apart from giving the client the most appropriate advice regarding their taxation affairs we also provide support through the provision of financial planning, bank and business loans and a supportive shoulder to lean on in tough times. We are all good listeners, something that seems to be missing in most professions at the moment.”