If you are one of 55% of Australians without basic hospital cover who is considering taking it up to avoid
paying the Medicare Levy Surcharge, take note: if you do so right now you will pay less tax over the year.
Levied on Australian tax payers who do not have private hospital cover and who earn above a certain
income bracket, the Medicare Levy Surcharge is applied on a pro rata basis and is based on the number
of days in the financial year that an individual or family does not have private health insurance.
If you are a single earning over $80,000 or family earning over $160,000 and do not have appropriate
hospital cover, you pay an extra 1% tax on the income earned during any uncovered day between 1 July
2011 and 30 June 2012, advises popular health insurance comparison website HelpMeChoose.com.au.
CEO Justin Hanka said, “Many Australians prompted by the Medicare Levy Surcharge to take up private
health insurance may be unaware they are better off financially to commence cover as early as possible
in the financial year. Each day they wait costs them money because the surcharge is calculated pro rata.”
“If this is one of your tax strategies then be sure to take out what the government determines to be
appropriate hospital cover. Often people choose general cover or 'extras' assuming this will be enough,
however this only comprises items such as optical, dental, physiotherapy or chiropractic treatment.
“To be exempt from the surcharge, your policy must cover some or all of the fees and charges for a stay
in hospital and be held with a registered health fund.”
To demonstrate the cost impact of the surcharge, HelpMeChoose.com.au outlines three scenarios based
on Mr. Example who earns $81,000 per annum (ie. within the Medicare Levy Surcharge income bracket).
Hospital cover from 1 July 2011
If Mr. Example took out appropriate insurance on 1 July 2011 and maintained this cover to the end of this
financial year, he will be exempt from the Medicare Levy Surcharge.
Hospital cover from 1 January 2012
If Mr. Example takes out appropriate insurance on 1 January 2012 and maintains it to the end of this
financial year he is exempt from the Medicare Levy Surcharge for only the six months covered. The
surcharge applied to the uncovered period will be calculated based on his income over the remaining six
months ie. $40,500.
No hospital cover between 1 July 2011 to 30 June 2012
If Mr. Example chooses to not take out hospital cover for the 2011/2012 financial year he will be required
to pay the full 1% Medicare Levy Surcharge on his entire taxable income.