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diploma-1390785__180The opportunity for university graduates to save 5% off HELP debt being repaid through the tax system is being abolished on 1 January 2017.

The Government is changing the way they administer the Higher Education Loan Program (HELP) effective 1 January 2017.

Currently, once a University Graduate’s ‘adjusted’ taxable income exceeds $54,126 ($54,869 for 2017 year), then they automatically start repaying their HELP debt through the tax system.  The compulsory repayments begin at 4% of taxable income above $54,869 and increase in line with income, capping out at 8% of taxable income once a Program participant’s income exceeds $101,900.  The repayment is made as part of the income tax assessment.

The Government currently provides a 5% discount (of the amount of payment) if an individual makes a voluntary repayment of their HELP debt.  The discount is automatically credited by the Government following a voluntary repayment.

However, the Government plans to remove this discount from 1 January 2017.  Therefore, to reduce future Tax Assessment and HELP debt, Program participants should take action before 1 January 2017 and before lodging 2016 tax returns.

As an example John has a HELP debt of $10,000.  He is a successful Dental graduate and has a taxable income in 2016 of $130,000.  Based on his income, when he lodges his 2016 tax return he would pay HECS of $130,000 x 8% = $10,400, but as this is capped at the amount of debt, it would be $10,000.

However, if he chooses to make a voluntary repayment before lodging his tax return, he can save 5%.  Therefore if he repays $9,524 before 1 January 2017 and before he lodges his tax return, the Government should credit a 5% discount ($9,524 x 5% = $476.20).  This will repay the $10,000 debt and save $476.  When he lodges his tax return, there will be $10,000 less on the Tax Assessment due to the HELP debt having already been repaid in full.

 

For more information please review the Government’s Study Assist website, speak with your usual Hanrick Curran adviser or contact Tim Taylor on 07 3218 3900.

 

 

 

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.