Medicare Levy Surcharge For 457 Visa Holders From July 2014

Australia has financial years that run from July to June each year. Many tax rates, fees and new policies are introduced on the 1st of July each year and this year it was no different.

The main change for 457 visa holders (and other overseas workers) was the increase of the income brackets when the Medicare Surcharge is first applicable and then increases.
The table below came from the privatehealth.gov.au website which is government owned and run.

So what does this mean?

If you earn $90,000 in Australia over the 2014/15 financial year (from July to June) you will be taxed an extra 1% to 1.5% of your wage.
So as an example, if you earn $100,000 in taxable income you will be taxed an extra $1,000 for that financial year.

If your a family, then you can combine your incomes (which is great if one of the two parents are the main breadwinner) and then the threshold started once this combine wage is $180,000.
So a similar example, if parent 1 earns $150,000 and parent 2 earns $50,000 the total combined salary will be $200,000 which will lead to an extra tax of $2,000

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Can 457 Visa holders & other overseas visitors working in Australia avoid this tax?

Yes, if you come from a country with a reciprocal health care agreement. I you come from one of these countries after you purchase working visa cover, you should apply for reciprocal health cover (Medicare). There is no extra charge for this and combined with private cover can help you avoid paying the Medicare Levy Surcharge.
For overseas working visitors the private health insurance you require is:
1) 457 Visa Holders need 457 Visa Health Insurance
2) 485 Visa Holders need 485 Visa Health Insurance
3) Other Visa Holder need Overseas Visitor Health Insurance

By having a DIBP (Department of Immigration & Border Protection) compliant policy not only do you meet condition 8501 of your visa but you also meet have adequate health insurance to avoid the medicare levy surcharge no matter what your taxable income is this year.

So what is cheaper? Health Insurance or paying the Medicare Levy Surcharge

Surprisingly, in almost all circumstance having health insurance is cheaper. Lets say for example compare an overseas worker who has just reached the threshold of $90,000 for the 2014/15 financial year.
This individual will need to pay an extra $900 in tax.
Now if the individual had purchased the cheapest HIF 457 visa health insurance policy, the policy price (with the 4% off promotion) would be $957.30 for the year.
This means that essentially the health insurance policy has cost you $57.30!!!

For the record, the exact salary when having health insurance becomes cheaper than paying the tax is $95,730, but even in the scenario before, it would be hard not to see the value in having health insurance if the real cost to you is under $60 each year!

Are there any other reasons I would want health insurance?

Having adequate health insurance for overseas workers is compulsory according to condition 8501.
This means that unless you are eligible and then receive Medicare you must show proof of a condition 8501 health cover policy when applying for the 457 visa (or any other applicable working visas) and then keep this level of cover over the duration of your stay. You can switch 457 visa health funds or health policies as long as they still meet the DIBP minimum requirements.

Another reason you may want to consider overseas visitor health insurance is that Medicare (which only those from a reciprocal health care country can apply for) only provides the very basics. Unlike systems like the NHS, Medicare is more designed as a safety net only and the level of care and waiting lists for procedures may be outside what you expect (in some cases operations will take months to schedule). Another element to factor in is Medicare doesn’t cover all your medical costs when your sick or injured. In most cases, there is a ‘gap’ payment which is the difference between what the doctor/hospital charge and what Medicare will rebate you. This is especially true if you require an ambulance which can costs $1,000’s of dollars just for one journey. Health insurance can either minimise this gap or remove it depending on the circumstances and the level of cover you adopt.

Overseas visitor health insurance can also provide an additional options if you are sick or injured such as being treated in a private hospital and having your choice of doctor. If you choose to also purchase an ‘extras policy’ you will receive rebates when you see a dentist, need a new pair of glasses or visit a physio.

Overall, most Australians have private health insurance even though they are below the medicare levy surcharge and don’t have visa requirements because of these elements above. Medicare was never designed to be used by all Australians and like many health systems is suffering from the strain of an aging population. To ensure you receive the best cover without large out-of-pocket expenses then health cover whether 457 visa health insurance or 485 visa health insurance is ideal for you!