Private Health Insurance - Rebate and Salary Sacrifice Questions

Hi OzBargainers,

My employer has recently announced that they will be paying for private health insurance for all employees at no cost (great!). We also have the option to include our partners/family (though with additional premium).

Two main questions I have:

Since my employer is paying the premium, should I be applying to receive the Australian Government Rebate for private health insurance as a reduced premium, or should I forgo this rebate and claim it as a health insurance tax offset? If claiming the rebate as a reduced premium, who gets the benefit (me or my employer?). This isn't very clear on the ATO website:

"If you claim your rebate as a premium reduction, your health insurer will adjust your rebate percentage and the rebate amount. If you claim your rebate as a tax offset in your income tax return, we will apply the adjusted rebate percentages to determine your correct private health insurance tax offset."

If I pay for my partner's health insurance from my salary, is this an eligible salary sacrifice, and therefore come off my pre-tax income?

Thanks for any help! I've never had private health insurance before so this is all new to me.

Comments

  •  

    It's ultimately dependent on your taxable income and your age - this largely determines what will make most financial sense.

  •  

    Whether or not you claim the rebate may be down to your employer's policy, they might require you to? Otherwise best to wait until the end of the year to get it back with your tax return as a discount on premium doesn't help you if your employer is paying. At the end of the year, the amount of rebate you should get is adjusted based on how much you earned, you can claim from the insurer any amount but it's fixed in the tax return if you've over claimed or under claimed.

    I don't know the rules for not for profit companies which have more generous salary sacrifice arrangements that might allow this, but in the private sector, you cannot salary sacrifice health insurance.

    It's also worth noting that any salary sacrifice amounts do not increase the amount of health insurance rebate you are eligible for, as it's added back to your after-tax income when determining your level of rebate.

    • +3 votes

      but in the private sector, you cannot salary sacrifice health insurance.

      Actually you can but in the private sector such benefit will attract FBT (at 47% rate). As employers usually include the FBT cost as part of the employee's salary sacrifice amount, it doesn't make sense to salary sacrifice something where one would have to pay 47% on it.

      •  

        Good to know. I guess I was just focused on practical reality rather than the rules. That might mean OP's employer has already included that in their calculation, so might be worth checking with them.

  •  

    You should aim to maximise your salary sacrifice so you should not apply to receive the Australian Government Rebate or if you must to do so, claim it at the highest tier possible (ie lowest rebate %). Any over payment will be refunded to you at the end of the financial year when you lodge your tax return.

    On your partner's health insurance, your employer can treat the additional premium either way (part of salary sacrifice or otherwise) so best to check with them.

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    Your employer claims the rebate as they are paying for it (unless they are doing it on expenses method, you provide invoice and they pay) and provides you with documentation regarding coverage so you don't have to pay the MLS.

    •  

      They can’t claim it as it’s based on family income not sole employee income

  •  

    My last employer of 3.5 years was an American company with a small Australian subsidiary.

    They paid our family’s health insurance - the absolute highest corporate NIB policy at about $8500 per year. We were allowed to claim the tax rebate at tax time and keep it. This was because employees are eligible for different rebate amounts depending on their family income so our employer would pay the full premium and allow us to keep the rebate (if eligible).

    Our employer also had to pay full FBT on this premium so my income statement from the ATO showed a crazy amount of fringe benefits which I received due to it being taxed at 47% which they paid on top of the $8500 per year.

    There would be zero point in salary packaging your partner’s cover unless your employer agrees to pay the 47% FBT on that part too. The downside to getting the additional coverage through work is they may choose an overly expensive policy where you could find a better policy yourself (which I now do as I pay for it myself).