Tax breaks for health expenses wound back

What about prepaying medical expenses before June 30 in order to access the current tax concessions? Whether a prepayment will be effective is a moot point. The relevant provisions in the tax law don’t seem to rule out a prepayment, and the general anti-avoidance rules would seem not to apply. Of course, the amending legislation to make the changes has not yet been introduced, so that may shed some light on these issues. Anyone considering this option should best seek professional advice.

In addition, it is possible health funds won’t pay out on an expense until the procedure paid for has actually taken place.

There are also suggestions that, where a health funds allows it, if people prepay their private health insurance premiums before June 30, they can secure the current 30% tax offset for that prepayment. While they may get the 30% offset upfront this way (and thereby pay reduced premiums), when the Tax Office works out their income for offset purposes after they lodge their tax return for the year ending June 30, 2013, things could be different. If they exceed the income threshold limits, the ATO will calculate the health insurance offset they would be entitled to and, where that is less than 30%, it will simply add on an amount to their tax bill.

I guess in a time value for money sense, it’s better to have the tax offset upfront and therefore pay reduced premiums, but the ATO will work it all out in the end, and a bigger tax bill may result – it’s just that that tax bill will come more than a year after you’ve effectively claimed the tax offset and had the benefit of reduced premiums.

So, those who have the misfortune to incur high medical expenses and who exceed the new income test thresholds will be hit three ways:

• A reduction in the 30% government private health insurance rebate they receive;
• Already increased (and sure to go higher) private health insurance premiums; and
• Exclusion from claiming the net medical expenses tax offset.

Maybe I’ve missed the point with all this. Perhaps the changes are directed at making people more health-conscious! Less doctor, hospital, etc visits means money saved.

As a quick reminder, the following table shows how the private health insurance offset changes will apply from 1 July 2012:

The families’ threshold is increased by $1,500 for each dependent child after the first. Families include couples and single parent families.

There would be no private health insurance rebate where individual income is over $130,000 a year and families over $260,000 a year.