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Re: Medicare Levy Surcharge for Couple and individual private health insurance cover

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I'm a migrant resident and I'm confused about the MLS!

 

The facts:

  • My income for MLS purposes is approximately $140k and I have an individual private health insurance policy.
  • My gilfriend's income for MLS purposes is approximately $80k. She does not have an individual private health insurance policy.
  • We live together, she is an Australian citizen and I am on a de facto partner visa and I am considered an Australian resident for tax purposes.

 

Questions:

1) On our individual tax returns do we each use the individual income thresholds for the Medicare Levy Surcharge or do we use the family threshold?

2) If we use the family threshold my girlfriend would be liable for the 1.25% surcharge as she does not have private health insurance cover. I would not be liable for the surcharge. This doesn't make sense as her total income for MLS purposes is less than $90k? Why is she penalised for being in a relationship with me?! Or am I misunderstanding how it works?

3) If she will definitely be charged, should I change my insurance policy to a couples policy? I understand there would still be some liability for the surcharge for the days she was not covered by an appropriate level of private health insurance/hospital cover.

 

This is assuming that we are able to find suitable couples cover for less than the cost of the MLS surcharge.

 

Any advice is much appreciated Smiley Happy

 

 

 

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Devotee

Replies 3

There are historic political reasons for why the MLS exists and its current form. As for your questions:

 

1) On our individual tax returns do we each use the individual income thresholds for the Medicare Levy Surcharge or do we use the family threshold?

Since you are on a defacto partner visa, it would not be farfetched for you to be considered as in a defacto / common-law relationship with your partner. MLS is then assessed on your "family" (being you and your partner - assuming you do not have children).

Think of it as: if you earn over the threshold, you pay for PHI or the MLS. If you have a family, you and your dependents need to have PHI or you and family(read: your partner) need to pay the MLS.

Now making someone / incentivinsing someone to buy PHI for tax reasons is poor public policy in my opinion but thats the world we live in.

 

2) If we use the family threshold my girlfriend would be liable for the 1.25% surcharge as she does not have private health insurance cover. I would not be liable for the surcharge. This doesn't make sense as her total income for MLS purposes is less than $90k? Why is she penalised for being in a relationship with me?! Or am I misunderstanding how it works?

 

You are in a de-factor relationship and she is an Australian resident so you are considered as a "family" for MLS purposes. You will both be slugged the MLS. As alluded to above in (1)

"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." - see here paragraph 2

 

She's your de-factor partner (from a legal perspective), it's a bit more than just a girlfriend.

 

3) If she will definitely be charged, should I change my insurance policy to a couples policy? I understand there would still be some liability for the surcharge for the days she was not covered by an appropriate level of private health insurance/hospital cover.

 

Whether you take out a couples policy or whether she gets her own policy (or whether you just pay the MLS) is up to you. As long as you are both covered (whether under separate individual policies or under a joint policy) then you should not be charged the MLS. You are correct when you mention that there would be liability for the days not covered. Also there is a penalty for taking out PHI when you are over 30 (you pay more for a period of 10 years on the policy) so watch out for that too.

4 REPLIES 4
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Best answer

Devotee

Replies 3

There are historic political reasons for why the MLS exists and its current form. As for your questions:

 

1) On our individual tax returns do we each use the individual income thresholds for the Medicare Levy Surcharge or do we use the family threshold?

Since you are on a defacto partner visa, it would not be farfetched for you to be considered as in a defacto / common-law relationship with your partner. MLS is then assessed on your "family" (being you and your partner - assuming you do not have children).

Think of it as: if you earn over the threshold, you pay for PHI or the MLS. If you have a family, you and your dependents need to have PHI or you and family(read: your partner) need to pay the MLS.

Now making someone / incentivinsing someone to buy PHI for tax reasons is poor public policy in my opinion but thats the world we live in.

 

2) If we use the family threshold my girlfriend would be liable for the 1.25% surcharge as she does not have private health insurance cover. I would not be liable for the surcharge. This doesn't make sense as her total income for MLS purposes is less than $90k? Why is she penalised for being in a relationship with me?! Or am I misunderstanding how it works?

 

You are in a de-factor relationship and she is an Australian resident so you are considered as a "family" for MLS purposes. You will both be slugged the MLS. As alluded to above in (1)

"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." - see here paragraph 2

 

She's your de-factor partner (from a legal perspective), it's a bit more than just a girlfriend.

 

3) If she will definitely be charged, should I change my insurance policy to a couples policy? I understand there would still be some liability for the surcharge for the days she was not covered by an appropriate level of private health insurance/hospital cover.

 

Whether you take out a couples policy or whether she gets her own policy (or whether you just pay the MLS) is up to you. As long as you are both covered (whether under separate individual policies or under a joint policy) then you should not be charged the MLS. You are correct when you mention that there would be liability for the days not covered. Also there is a penalty for taking out PHI when you are over 30 (you pay more for a period of 10 years on the policy) so watch out for that too.

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Appreciate your quick answer. It does seem a strange public policy but I'm British so I've probably taken free healthcare for granted for too long! 

 

My only further question to your reply is what amount my partner would pay the MLS rate on if she didn't have PHI... Assuming we qualified for the 1.25% rate, is it:

  1. 1.25 % on the the total family income for MLS purposes; or
  2. 1.25% on her total income for MLS purposes?

 

Knowing that will help us determine whether taking out a PHI policy or simply paying the MLS would be a better option.

 

Thanks!

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Devotee

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If you do not take out complying couples hospital cover or if she does not get hospital cover herself:

 

Your tax return:

Income: 140k. Spouse income 80k. PHI but fails due to dependents not having PHI.

Tier 2 based on family income 1.25% MLS - > pay $140,000 x 1.25%

 

Your Partner's tax return

Income: 80k. Spouse income 140k. no PHI.

Tier 2 based on family income 1.25% MLS - > pay $80,000 x 1.25%

 

 

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Thank you for your comprehensive and clear answers. The gaps in my understanding have been filled! Now to find some adequate cover...