A new survey from YouGov Galaxy Research, commissioned by iSelect, has found over half of Australians (56 per cent) are confused about how private health insurance relates to tax.
According to the survey, almost two-thirds (64 per cent) of Australians do not understand the Medicare Levy Surcharge (MLS), with 39 per cent confusing the surcharge with the Medicare Levy paid by all taxpayers.
The MLS is levied on Australian taxpayers who do not have an appropriate level of private patient hospital insurance and earn above a specified income.
The survey commissioned by iSelect found barely one-third (36 per cent) of Australians correctly understand that the MLS is an additional tax for people with no private cover.
iSelect spokesperson Laura Crowden said it was important people understand how the MLS works to ensure they do not get caught out at tax time.
“If you earn more than $90,000 a year and don’t have private hospital cover by June 30, then you will have to pay a minimum $900 in extra tax next financial year due to the MLS,” she said.
“Exactly how much extra tax you’ll pay depends on how much you earn and for most higher income earners, taking out a basic hospital policy will generally cost less than paying the extra tax via the MLS.”
Ms Crowden said Lifetime Health Cover (LHC) is also an important consideration with over 900,000 Australian currently paying a loading on their premiums as a result of taking out private hospital cover after turning 21.
“Unlike the MLS, LHC is not a tax. However because the deadline to avoid LHC is June 30 following your 31st birthday, LHC also gets talked during EOFY so its understandable many Australians are confused,” she said.
She added that the end of financial year is also a good time for people to review their private health insurance policy.
“If you already have cover, EOFY should be a reminder to review your cover and make sure you are still getting good value for money. For those without cover, now is the time to think about whether or not you should take it out, particularly if you are a higher income earner or about to turn 31,” said Ms Crowden.