Tax bill looms for health fund members

A survey has found 53 per cent of the 2.4 million fund members affected by means-testing have not made any changes to their insurance. Picture: Guy Bailey. Source: Supplied

MORE than 1.2 million Australians face a retrospective tax bill of up to $1,000 because of the means-testing of private health insurance rebates.

A Galaxy survey conducted for health fund broker iSelect has found 53 per cent of the 2.4 million fund members affected by the test have not made any changes to their insurance since it was introduced.

Individuals earning over $84,000 a year and families earning over $168,000 a year had their 30 per cent government subsidy reduced or eliminated in July this year.

It was their responsibility to notify their fund of their income so their premiums could be adjusted to reflect the new lower government subsidy.

However, the survey of over 1,300 Australians found most of those hit by the means test have failed to take any action to avoid a tax penalty.

They will face a tax bill of between $339 and $1,000 next July when the government moves to claw back subsidies they were not entitled to.

The bad news for the government is that this tax bill will arrive around the same time as a federal election is due.

One in four people in the income band affected by the new means test don't have private cover and they could be facing a higher tax penalty as well because the Medicare Levy Surcharge that applies to them has also been increased.

The Galaxy survey found 91% those affected by the test were aware of its introduction.

However, only 5 per cent said they had contacted their fund to inform them of their income level.

Sixteen per cent of those affected avoided the impact of the means test for the first 12 months by pre-paying for at least a year of cover before June 30 this year.

And 53 per cent told the Galaxy poll they had not made any changes to their insurance in the last 12 months.

One in five people affected acknowledged they should look into the means test and admitted they didn't know how it will affect them.

"This picture signals a level of inertia, if not complacency among Australians with their PHI that is setting them up for some unhappy tax returns in the year ahead," the poll analysis says.

Individuals earning over $130,000 and families on over $260,000 will lose the 30 per cent government premium subsidy altogether but 48 per cent of them have taken no action to avoid a tax bill.

Given that these people expect a tax refund of approximately $1,942 a year the loss of the PHI rebate "may be unexpectedly disappointed when it comes time for their tax return," the Galaxy survey says.

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