If you’re like many Australians who finish university then take off to another country for work there are many things you need to be aware of, including how to pay off your Higher Education Loan Program (HELP) debt (previously known as HECS) if you have one.
There is a myth that has been floating around Australian expat circles for some years now, that if you move overseas for a certain number of years, your HELP debt will magically disappear! This is most definitely NOT the case. In fact, if you fail to make mandatory payments towards your existing HELP/HECS debt, you could face some stiff penalties.
So, here’s everything you need to know about your HELP/HECS debts as an expat.
Do you need to repay your HECS debt as a non-resident expat?
Technically, yes, the Australian government helped pay for your higher education under the assumption that you would eventually pay that debt back, whether you live in Australia or not.
However, the amount that you need to pay (if anything at all) ultimately depends upon how much money you earn (from all sources) per year.
Each year the Australian Taxation Office (ATO) details thresholds for repaying your HELP/HECS debts each year. For the 2019-2020 Australian financial year, that threshold is $45,881. If you’re worldwide income exceeds that amount, then you will be required to make a compulsory HELP/HECS debt repayment.
What if I’ve made voluntary repayments towards my HELP/HECS debt during the year?
Unless you’re intending to repay your HELP/HECS debt in full during the year, we don’t generally recommend making any voluntary payments at all!
Why? There’s a couple of reasons actually. Firstly, although your HELP/HECS debt is indexed by inflation each year (so it can increase marginally from year to year), no interest is levied on the outstanding debt. In effect this is an interest-free loan.
As such we recommend paying off other interest bearing debts first, such as your credit-card (as these can incur interest of up to 18-20% and sometimes even more) and your personal loans etc. This will cause you to pay less interest and in turn pay down your debts faster!
So the takeaway – focus on paying down interest bearing debts rather than making voluntary repayments of your interest-free debts (i.e. your HELP/HECS debts).
But that’s not the main reason why you should not make voluntary repayments!
The main reason is that if you make a voluntary repayment towards your HELP/HECS debt, but you still have a HELP/HECS debt owing as at 30 June of that financial year, then you will still have an obligation to make a compulsory repayment IN ADDITION to the voluntary repayment that you have already made!
The reason for this is that voluntary repayments do not count towards your compulsory repayments! That means that you will be required to pay much more than what you planned. I cannot stress this point enough!
The rules are simple. Regardless of whether you have made voluntary repayments, if you have an outstanding HELP/HECS debt balance outstanding on 30 June, then you will be required to make a compulsory repayment based on your worldwide income for that year!
So, in summary:
- Voluntary payments DO NOT count towards compulsory repayments; and
- Pay off your interest bearing debts BEFORE voluntarily repaying your interest-free HELP/HECS debts
Why do I keep referring to needing to report your “worldwide income”?
For those of you who left Australia to become a non-resident expat (pre 1st July 2016), many of you will recall that previously you only needed to report your Australian income in your Australian tax return, and that as most of your income was earned overseas (foreign income), that foreign income was simply excluded from your return. Tis meant that for many of you, your taxable income simply didn’t exceed the repayment threshold.
For those of you who follow our blog and read our articles, you’ll know that this all changed from the 2017 year onwards. Ultimately the Australian government changed the rules, such that from 1st July 2016, non-residents with HELP/HECS debts outstanding as at 30 June 2017 (and 30 June every year after) are require to calculate and report their worldwide income if that income exceeds the HELP debt reporting threshold. This is different to the repayment threshold!
If you want to read more about these changes, take a look some articles that we wrote much earlier:
- Student HELP debt loophole closed to Aussie expats
- Compulsory HECS Repayments by Expats
- The HECS, HELP and TLS shirt tail effect
Wait . . . what – there’s a reporting threshold too?
Indeed there is. There is both a reporting threshold, AND there is a repayment threshold.
The repayment threshold as you know from above, is $45,881 and if your worldwide income exceeds that amount, then you’ll be obligated to make a compulsory HELP/HECS debt repayment.
The reporting threshold on the other hand is equal to 25% of the repayment threshold. That is the threshold above which you are required to calculate and report your worldwide income to the ATO. For 2019-2020 the reporting threshold totals only: $11,470.
This means that if your worldwide income exceeds $11,470 for the 2019-2020 Australian financial year, then you are required to calculate and report your worldwide income to the ATO via a foreign income reporting schedule in your 2020 tax return, even though your income may not exceed the repayment threshold
I know what you’re thinking – that’s crazy! And we agree! We think that is unfair and unnecessary. All it serves to do is to allow the ATO to keep tabs on you, whilst increasing your compliance costs (time and dollars) unnecessarily! It should not be that way – we’re not fans!
How do I calculate my worldwide income?
That’s a great question, simple in fact, but the answer is a little more complicated and one that we’ve answered an earlier article that we wrote – take a look at the link below as this will help explain:
How much do you need to repay?
Ultimately the amount you need to repay each year will depend on how much you earn. Unless your worldwide income is below the reporting threshold ($11,470 for 2019-2019), then you WILL be required to declare ALL of your income, from ALL sources around the world, every year (assuming that you earn more than the threshold each year), until your debt is repaid.
You can do this yourself by calculating your worldwide income and preparing and lodging your return according to the rules (refer link above) via your myGov portal or you can reach out to a specialist expatriate tax firm such as ourselves (or others) to perform the calculations and prepare and lodge the return on your behalf. Once your return is lodged, the ATO will issue you with a compulsory HELP/HECS debt repayment notice (known as an Overseas Debtors Levy) for the year based on your total worldwide income.
As for the amount of your potential repayment, compulsory repayments will start at 1% of your total worldwide income figure above $45,881.
As your income increases, so too does the percentage of your income that you will be required to pay – the percentage increases by 0.5 or 1% every $5,000 or so and eventually caps out at 10% of your total worldwide income where your income exceeds $134,573 for 2019-2020.
The ATO updates the repayment thresholds and amounts each year so be sure to check exact numbers each year.
As you can see, your compulsory repayment could be quite substantial each year, so it’s a good idea to understand how these rules will affect you before you move overseas to become an Australian expat. At the very least you should estimate your worldwide income and then estimate how much HECLP/HECS debt you might need to pay and then budget for that repayment percentage each month by putting some of your gross (pre-tax) salary aside in anticipation of having to make a compulsory repayment at the end of the year. This is important because the ATO will expect that amount to be paid in one lump sum at that time.
Important Note: Your compulsory repayment is NOT calculated as a percentage of your HELP/HECS debt as many mistakenly assume. As explained above, the amount you will be required to repay will be based on a percentage of your total worldwide income.
Got any questions, or do you need some help (excuse the pun)?
If this is all too much for you, or if you don’t want the stress or headaches in dealing with these obligations, or if simply just need some help, reach out to our team by booking an appointment with us, or by sending us a message.
We’ll be happy to assist by preparing your return promptly so that you can minimise any potential repayment, and relax, knowing that everything’s in good hands!
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