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