Private ruling: Private health insurance rebate - Income for surcharge purposes
Published: September 2014
Ruling period: Year ended 30 June 2013.
Date scheme commenced: 1 July 2012.

Ruling: Q1: Is your combined income for surcharge purposes reduced by your tax loss in the year ended 30 June 2013? | A1: No. | Q2: Are you entitled to a 30% reduction in your private health insurance premiums in the year ended 30 June 2013? | A2: No.

Relevant facts and circumstances: You are a private health insurance incentive beneficiary (PHIIB). A PHIIB is specifically defined in Section 22-5 of the Private Health Insurance Act 2007 (PHIA 2007). You and your spouse are aged under 65. You received a premium reduction of 30% up front with your private health insurance fund and this amounted to a premium reduction of a certain amount. Your notice of assessment for the year ended 30 June 2013 issued on a certain date. The notice of assessment included a liability of a certain amount for 'Excess private health reduction or refund (rebate reduced)'. For the year ended 30 June 2013: • you had a tax loss of a certain amount generated by share trading activities • your spouse's taxable income was a certain amount • your spouse's reportable employer superannuation contributions was a certain amount.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 159P | Income Tax Assessment Act 1997 Section 4-15 | Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Division 36 | Income Tax Assessment Act 1997 Subdivision 61G | Income Tax Assessment Act 1997 Section 995-1 | Private Health Insurance Act 2007 Section 22 | Private Health Insurance Act 2007 Section 282.

Reasons for decision: Summary: Your combined income for surcharge purposes is not reduced by your tax loss in the year ended 30 June 2013. | Detailed Reasoning - Detailed reasoning: Your combined income for surcharge purposes is the combination of you and your spouse's income for surcharge purposes. An individual's income for surcharge purposes is defined in Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as the sum of the following: • taxable income • total reportable fringe benefits amounts • reportable employer superannuation contributions • net financial investment loss • net rental property loss • deductible personal superannuation contributions • net amount on which family trust distribution tax has been paid, and • superannuation lump sum taxed elements with a zero tax rate. As this list does not contain a tax loss, it is excluded from the calculation of an individual's income for surcharge purposes. Accordingly, a tax loss would also be excluded from the calculation of combined income for surcharge purposes. A recent Small Taxation Claims Tribunal decision AAT Decision AATA 0046 - Reilly v Commissioner of Taxation discussed the issue of 'whether taxable income can be a negative amount'. It was decided that Subsection 4-15(1) of the ITAA 1997 is clear in stating ' If the deductions equal or exceed the assessable income, you don't have a taxable income'. This means that if you have a tax loss, your taxable income is zero. In your circumstance, you had a tax loss of a certain amount (which you may be able to deduct in a later income year, see Division 36 of the ITAA 1997). This means that your taxable income is zero and your tax loss does not reduce your combined income for surcharge purposes. | Summary: You are not entitled to a 30% reduction in your private health insurance premiums in the year ended 30 June 2013. | Detailed Reasoning - Detailed reasoning: Your entitlement to a private health insurance premium reduction in the year ended 30 June 2013 is income tested. The income test is based on your income for surcharge purposes. If you have a spouse on 30 June, your income for surcharge purposes also includes your spouse's income for surcharge purposes. Your combined income for surcharge purposes is subject to the family thresholds, which determines how much premium reduction you are entitled to. The private health insurance family thresholds are defined in Section 22-30 of the PHIA 2007 and are subject to indexing each year under Section 22-45 of the PHIA 2007. For the year ended 30 June 2013, the Tier 2 family threshold is between $194,001 and $260,000. Your income for surcharge purposes is calculated as: Taxable income $ 0 | Detailed Reasoning - 0: Your spouse's income for surcharge purposes is calculated as: Taxable income $ Certain amount Reportable employer superannuation contributions $ Certain amount | Detailed Reasoning - Certain amount: Your combined income for surcharge purposes is calculated as: Your income for surcharge purposes $ Certain amount Your spouse's income for surcharge purposes $ 0 | Detailed Reasoning - Certain amount: As your combined income for surcharge purposes is within the Tier 2 family threshold and you and your spouse are under 65 years of age, you are only entitled to a 10% premium reduction.