Understanding the Impact of HECS-HELP Debts on your Tax Bill

Recent media coverage and social media discussions have shed light on a concerning upward tax bill trend, especially from young professionals. Individual taxpayers have recently been confronted with unexpected and sizable tax bills from the Australian Taxation Office (ATO), despite their initial anticipation of receiving a tax refund.

Taking a closer look at the circumstances, it seems that their tax situation may partly be influenced by their HECS-HELP debt.

There are various factors why the tax withheld from salaries and wages does not sufficiently cover the tax liability and HECS-HELP debt. These include:

1. Juggling Multiple Jobs or Job Changes: Individuals who hold multiple jobs or switch employers during the year may encounter a challenge. Each employer lacks a comprehensive view of the employee’s total income from other employers, potentially resulting in insufficient tax withheld to meet the HECS-HELP obligation for the entire year.
2. Salary Sacrifice and Reportable Fringe Benefits: Employees who opt for salary sacrifice arrangements involving reportable fringe benefits may see a reduction in the tax withheld due to the lower reported salary. However, the reportable fringe benefit amount is still factored into the repayment income used to calculate HECS-HELP repayments.
3. Impact of Negative Gearing: Negative gearing amounts are factored into the repayment income, and various factors, such as rising interest rates, can contribute to larger negative gearing amounts. Increased interest income from savings accounts can further amplify the repayment income, potentially affecting HECS-HELP repayments.
4. Changes Following the Conclusion of LMITO: The conclusion of the Low and Middle Income Tax Offset (LMITO) after June 30, 2022, has created a gap in covering potential shortfalls, unlike previous income years when it provided relief.
5. Errors in Withholding Declarations: Mistakes made while completing withholding declarations for employers can also contribute to an unexpected tax situation.

The Impact of 7.1% indexation applied to HECS- Delp Debt

Furthermore, the 7.1% indexation applied to HECS-HELP debts during the 2022-23 income year has intensified financial pressure for many taxpayers, as their repayments may not adequately cover the indexed amount.

It’s also important to note that the 7.1% indexation is applied to an individual’s debt without considering any amounts withheld from salaries and wages during the year. These withheld amounts are not applied until after the end of the income year (when the tax return is filed and the HECS-HELP repayment amount is cleared).

How can Morrows Help?

If you or a family member are unsure about your tax liability and the tax regulations changes, please contact your Morrows Tax advisor. Our team of experts will work with you to ensure accuracy in withholding declarations and help minimise your tax liability while staying compliant.