I really hate being the bad news girl. There’s nothing worse than having to tell a client that there’s an unexpected tax debt. In the perfect world, no one would ever have a tax debt and I could be like a heroine – always ringing to advise of the massive tax refund you are due. Sadly, they don’t make heroine capes in my size.
In the 2013 financial year (that’s the one we are in now: July 2012 – June 2013) I fear that I’m going to be the bad news girl to many unsuspecting clients. In fact, many of you are probably incurring a tax debt right now without even being aware of it – sneaky as it is. Let me explain…..
The government announced the change to the private health insurance rebate some time ago but this only took effect on July 1st. In very basic terms, anyone who:
- has an adjusted taxable income of more than $84,000 (or double that if you are a family) and
- has private health insurance
will no longer be entitled to the full 30% rebate.
The government has a going, going, gone phase out system and the thresholds drop by 10% depending on your income level. There was a period of grace where higher income earners could prepay their private health insurance and gain the benefit of the 30% threshold but this needed to be done prior to June 30th.
Sneaky again, the rebate is calculated on adjusted taxable income. Adjusted taxable income includes your taxable income, adjusted reportable fringe benefits, tax free pensions/payments, reportable super contributions, net investment losses and child support paid.
As things stand now, if your income is too high and you’re still receiving the 30% rebate – you are incurring a tax debt. The only exception to this is if you have notified your private health insurance fund and elected to decrease your rebate. I have asked dozens of clients whether they have done this and I am yet to find someone who has.
This is all going to sneak up on us when it comes time to prepare the 2013 income tax returns. The ATO are going to reconcile your income against the rebate you have been receiving and if you’ve received too much rebate, they will include the overpayment as a tax liability with your 2013 return. This means any refund owed to you will be taken as a payment and you could still end up with a debt.
The simple solution to avoid the debt is to do as follows:
- Consider what your adjusted taxable income for July 2012 – June 2013 is going to be. If it’s less than $86,000 for singles or $168,000 for families there is no need to do anything.
- If your income is more than this, contact your private health insurance company and advise them.
Or if you come up with a better solution let me know. I already considered hiding under a rock and hoping it all goes away but my husband pointed out I’m not rock shaped. So plan B is contortionist camp. Wish me luck!