How Private Health Insurance can impact an expatriate employee's tax position

Australian Private health insurance is a common benefit provided by employers to protect the health and wellbeing of their globally mobile employees. However, if you are arriving or leaving Australia, it is important that you hold the right cover for your particular circumstances and that it covers you for the right time period to avoid unexpected additional tax costs.

As an expatriate employed in Australia, do I require Private Health Insurance?

Generally speaking, if you are arriving in Australia on a temporary work visa, you are not eligible for Medicare benefits even if you are considered an Australian tax resident. However, in order to meet the requirements of your Australian work visa, your employer might provide you with a general expatriate private health insurance cover (please check your individual company policy for further details). If you are not eligible for Medicare benefits, then you are also exempt from the 2% Medicare Levy. To support this exemption you will need to apply for a Medicare Entitlement Statement on an annual basis.

When might Expatriate Health Insurance be insufficient?

An exception to the above is if you arrive from one of the countries below which have a Reciprocal Health Care Agreement (RHCA) with Australia: 

• Belgium
• Finland
• Republic of Ireland (only if you are also an Irish citizen)
• Italy (only if you are also an Italian citizen)
• Malta
• New Zealand
• The Netherlands
• Norway
• Slovenia
• Sweden
• United Kingdom
  

If you are arriving in Australia from one of the above countries, then you are eligible for limited Medicare benefits and must pay the 2% Medicare Levy. 

In this situation, you would require private health insurance with basic Australian hospital cover (provided by an Australian insurer), to exempt you from the additional Medicare Levy Surcharge (MLS). The maximum rate of the MLS is 1.5% of your taxable income and reportable fringe benefits. It is often the case that the MLS exceeds the cost of appropriate Australian private health insurance premiums for higher income earners.

Also worth remembering: Australian citizens and permanent residents who are also tax residents will be subject to the Medicare levy and will need to hold appropriate Australian private health insurance in order to avoid the MLS.

How do you determine if you have the right health cover?

The below steps can help you understand whether your tax liability can be reduced by having appropriate health insurance.

1. Determine whether you can access the Medicare system and are liable for the Medicare Levy.

• Can you access Medicare benefits in Australia (i.e. are you an Australian tax resident, permanent resident, in a defacto relationship with an Australian citizen or PR)?
• If you don't meet the above criteria, are you from one of the listed countries which have a RHCA with Australia? 

If you do not meet any of the above criteria, then you may apply for a Medicare Entitlement Statement which exempts you from the Medicare Levy and any associated surcharge.

If you meet any of the criteria in points 1 and 2 then you will need to take additional steps to determine whether the surcharge will apply.  

2. If you are liable to pay the Medicare Levy, determine your exposure to the Medicare Levy Surcharge by reading this article.

But hang on...what about private health insurance if I am leaving Australia?

Australian tax residents will always be subject to the Medicare Levy and you need to ensure you have appropriate private health insurance if you are also liable for the MLS. In order to avoid an unexpected tax bill, refer to our article here for tips on making sure you have the right cover in place. 

It is worth remembering that if you are an Australian citizen or permanent resident, you may continue to access Medicare when you return to Australia so long as you have a valid Medicare card. 

If you become a tax non-resident upon leaving Australia, you do not need to continue paying the Medicare levy. As a consequence you will also not be subject to the MLS and so do not need to actively maintain your private health insurance policy whilst overseas. However, it is strongly recommended that if you intend to eventually return to Australia, you suspend rather than cancel your Australian private health insurance policy. This will help to avoid any additional premium loadings that could be applied where your continuity of cover is broken.

This document merely provides a broad outline of the subject and is necessarily general in nature.  If you require specific advice, which is tailored to your specific circumstances, please do not hesitate to contact us (fees would apply).