ATO ID 2004/713: Private Health Insurance tax offset: premium for cover in another income year
Date of decision: 12 August 2004
Year of income: Year ended 30 June 2004
Business line: Small Business/Individual Taxpayers

Issue
Is the taxpayer entitled to the 30% private health insurance tax offset under section 61-335 of the Income Tax Assessment Act 1997 (ITAA 1997) for a premium, or in respect of a premium, paid under an appropriate private health insurance policy which covers the taxpayer for an income year other than the current year?

Decision
Yes. The taxpayer is entitled to the 30% private health insurance tax offset under section 61-335 of the ITAA 1997 for a premium, or in respect of a premium, paid under an appropriate private health insurance policy which covers the taxpayer for an income year other than the current year.

Facts
During the 2003-04 income year, the taxpayer paid a monthly premium for health cover under an appropriate private health insurance policy within the meaning of the Private Health Insurance Incentives Act 1998 (PHIIA 1998). In June 2004 the taxpayer paid an advance premium under the above policy providing private health cover for the taxpayer over the following twelve months. On the taxpayer's private health insurance statement for the 2003-04 income year, the advance premium was included in the total premium paid during the above year. Under section 61-340 of the ITAA 1997 the taxpayer would obtain a greater tax offset when it was calculated on 30% of the total premium paid during the 2003-04 income year.

Reasons for decision
Summary: Section 61-335 of the ITAA 1997 allows a taxpayer a tax offset in respect to premiums paid for an appropriate private health insurance policy within the meaning of the PHIIA 1998. Section 61-340 of the ITAA 1997 outlines how the tax offset is to be calculated for the 1999 and later income years. The 30% private health insurance tax offset is calculated on the amount of the premium, or on the amount in respect of a premium, paid by the taxpayer, or by the taxpayer's employer as a fringe benefit, under the policy for the 1999 and later income years (section 61-340 of the ITAA 1997). Paragraph 5.7 of the Explanatory Memorandum (EM) to the Private Health Insurance Incentives Bill 1998 states that where; an individual pays a premium for cover in respect of more than one income year or parts of more than one income year the offset will be calculated by reference to the total amount of the premium paid for that cover. An offset will be allowed in an income year even where the amount is in respect of cover for that income year and/or any other income year. In these circumstances, the successive application of the calculation provisions in new section 61-340 may be required to calculate the actual offset amount in an assessment for an income year. In this case the taxpayer has paid for a premium in respect of an appropriate private health insurance policy under the PHIIA 1998 during the 2003-04 income year. Part of the total premium paid by the taxpayer also provided cover for the following income year. According to the above EM, the intent of section 61-340 of the ITAA 1997 is to allow the 30% private health insurance tax offset on the total premium paid for cover in an income year, irrespective of whether the premium provides cover for any other income year. Under section 61-340 of the ITAA 1997 the taxpayer's allowable private health insurance tax offset for the 2003-04 income year is based on 30% of the total premium paid in that year.

Legislative references: Income Tax Assessment Act 1997 section 61-335 section 61-340
Other references: Explanatory Memorandum to the Private Health Insurance Incentives Bill 1998
Subject references: 30% Private Health Insurance Rebate Private health insurance offsets Private health insurance incentives