It might be a good idea not to break a leg or catch a costly to treat disease after July 1 this year. And get those teeth seen to before June 30!
The reason is that the winding back of tax breaks for medical expenses announced in the federal budget, coupled with reductions in the 30% government rebate for private health insurance premiums, plus increasing private health insurance premiums themselves, means many people are likely to be more out of pocket for their medical expenses after July 1.
Staying healthy takes on a whole new meaning – it will save you money. And attending to medical matters before June 30 can mean you will get more benefit from the existing rules than if you pay for the expenses after July 1.
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The tax law currently provides a medical expenses tax offset to help people with large medical bills from health professionals such as doctors, hospitals, chemists and dentists. For the current income year ending June 30, 2012, the offset (or rebate) is 20% of the excess over $2,060. The medical expenses that can be claimed are net expenses, that is, after any claim paid or payable from a health fund.
All that will change from July 1 this year. As announced in the federal budget just over two weeks ago, for people with adjusted taxable income above the Medicare levy surcharge thresholds ($84,000 for singles and $168,000 for couples or families in 2012-13), the threshold above which someone may claim the medical expenses offset will be increased from $2,060 to $5,000 (indexed annually thereafter). That will amount to a very high hurdle for many people.
In addition, the rate of reimbursement will be reduced from 20% to 10% for eligible out-of-pocket expenses incurred. People with income below the surcharge thresholds will be unaffected.
The Federal Government expects the change to result in $115 million more in revenue in 2013-14 and $255 million over the next two years after that.
As I wrote in my budget night report on this for the Thomson Reuters Weekly Tax Bulletin, further tightening of the offset was probably not surprising. Increasing the threshold was one of those slow moving rather obvious targets for any expenditure review committee, so it’s not surprising it has been raised again. On reflection, however, given the changes announced, one wonders why the government just didn’t abolish the tax offset altogether.