A looming tax trap !

About four hundred thousand Australian taxpayers are likely to get a very unpleasant surprise when they file their tax return this financial year.   Last July, changes to the Health Insurance rebate came into effect and it seems that a lot of people are still claiming a thirty percent rebate to which they are no longer entitled.  In many cases, this will result in a $ 1,700 tax bill !

This rebate was originally legislated to drive more people into taking out private health insurance and ease the load on the public hospital system.  Under financial stress, the government changed the eligibility rules to have the rebate cease for singles earning $ 84,000 and families with combined incomes of $ 168,000.

Now it has been revealed that there has been confusion on who needs to do what to bring this change into line with the new law.   It seems that the health insurance companies have continued to apply the rebate to the premiums of their customers - unless those customers have specifically advised them that they are no longer eligible.

Unfortunately, the tax maize is a mystery that many people leave to their taxation accountant and only present their paperwork when the need to prepare a tax return arrives each year.   If they have received the benefit of a rebate for which they are not entitled for this tax year, any chance of a refund will morph into the certainty of a big bill instead !

There will be finger pointing and accusations of neglect, but the health insurance companies were obviously concerned that these tax changes would have an unknown effect on their viability and left the onus on their customers to make the first move.

It also seems that this tax revelation is coming at the worst possible time.  There is a likely premium hike coming through the system and many taxpayers are about to get a double shock.   Not only do they lose that valuable thirty percent rebate, but the basic price of their insurance will also face an upward jump - and on top of that, there will be this unpaid tax bill for the claim made over the past year.

The big mystery is how all this will affect the viability of our hospital system.  The idea of the rebate was to pressure people to lower their compulsory tax bill by using insurance premiums as a tax lowering claim.   There is a real chance that some people may abandon their insurance cover and rely on the public health system because the rebate no longer applies - and our hospitals are already groaning under the load.

Making this change stick is certainly something that could have been handled in a much better way !