Often, I am asked by clients “Why do I pay HECS in my tax return when my employer withholds HECS and pays it for me?”
The simple answer to this is that your employer actually doesn’t pay anything off your HECS-HELP debt. Never mind what is shown on your payslip!
When your employer takes extra tax from your wages for your HECS-HELP debt, it is nothing more than extra tax. It is not split between tax, HECS-HELP or any other tax. It is not paid into some special account at the ATO either. The extra tax is merely deducted to make sure you’re covered when it comes time to prepare your tax return.
Your actual HECS-HELP repayment is calculated in your tax return each year, because it all depends on your taxable income. The extra tax withheld from your wages is usually enough to cover your normal tax on wage and salary earnings and the HECS-HELP repayment. Sometimes too much tax will have been deducted, and you will receive a refund of the extra tax. Conversely, a situation can arise where not enough tax has been withheld. This can happen when your employer was not made aware of your HECS-HELP debt. It can also happen in situations where you had more than one job during the financial year. In these cases you will have to pay extra tax when your return is assessed.
Don’t forget that HECS-HELP repayments are also affected by things like fringe benefits received, super payments made through salary sacrifice, exempt foreign employment income and any investment losses, such as rental properties that have been used to reduce your taxable income. Yes, the ATO treats it all as taxable income for HECS-HELP debt repayment purposes!
The minimum repayment income threshold to make a HECS-HELP loan repayment for 2016-17 is $54,869 (in 2015-16 it was $54,126). Where your income for HECS-HELP purposes exceeds this threshold, a compulsory repayment of at least 4% is calculated in your tax assessment.
For further assistance with this, or any other matter, please contact Platinum Accounting & Taxation on (03) 9746 6479 or join our tribe on Facebook for more helpful tax tips.