What does the HECS debt reform mean for your 2024FY tax return?

When you go to a university or attend a higher education institution, you can get a HECS-HELP loan to pay your tuition fees. This article guides you through how loan repayments are processed and affect your tax return. 

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What is compulsory repayment? 

Compulsory repayments of your loan are made through your income tax return each year.

Your instalment amount will automatically be calculated based on your income. 

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You need to inform your employer if you have a HELP debt, so they can withhold additional PAYG to repay your HECS loan.

You notify your employer by stating that you have HECS-HELP debt when you fill out your tax file number declaration, which is usually done at the beginning of your employment.

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Note that HECS debt repayments are not deductible for your tax return.

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Refer to AU gov: Loan Repayment to calculate your HECS repayment amount. 

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What is HECS-HELP debt indexation?

HECS-HELP debt indexation is similar to interest; your debt grows throughout your repayment period. HELP debts are indexed based on the Consumer Price Index (CPI) to keep up with changes in the cost of living. 

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Note that your debts are not indexed until they are 11 months old.

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Here are the indexation rates for each financial year.

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Example, Juan started his undergraduate degree in 2022. He has a HELP debt of $15,600.00. 

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His fees of $4,800.00 from the first semester (census date of 28 March 2022) will be indexed on 1 June 2023 as they are more than 11 months old ($4,800 x 7.1% = $340.80). 

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The remaining fees from semester 2, 2022, and semester 1, 2023 will not be indexed on 1 June 2023 as the debts are not yet 11 months old. Juan Carlos now owes ($15,600.00 + $340.80) = $15,940.80.

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Reduction in indexation rates for the 2023FY and 2024FY

The Australian Government has announced significant changes to the indexation of HELP loans, effective 1 June 2023, subject to legislation approval.

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The following table describes the possible changes in indexation rates.

The Australian Government has announced the following estimated indexation credit that the HELP debtors will receive in their 2024 FY. 

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How does the credit apply to your debt?

After the relevant legislation passes, ATO will automatically apply the revised indexation rates to your loan.

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This means that it is likely that you will receive an indexation credit that will reduce your outstanding loan. 

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Refer to AU gov: HELP Indexation Credit Estimator

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CTK Accounting is a full-scope accounting firm based in Wollongong, servicing clients nationally.

For advice on Tax, BAS, GST, Bookkeeping, and Payroll issues visit us at ctkaccounting.com.au

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