If you have a HECS/HELP debt and move abroad then the ATO will advise customs, who will then stop you the next time you enter the country.

no – just kidding.

I believe the position is the same as if earned under the threshold, that you don’t have to pay it back. If you permanently move overseas the debt would just sit there just in case you ever came back (and cease if you passed away).

But note that Australian tax resident pay tax on worldwide income – so if you worked overseas for a year (or maybe 2) you could still be a ‘Australian tax resident’ and need to include your worldwide income and then have to pay a HELP repayment.

But it appears an Australian foreign resident (i.e. someone who emigrated overseas) would be able to leave without paying back the debt.
Scott

Compulsory HELP payments are not before tax payments.

Your employer takes extra from your salary by taking extra PAYG withholding to help cover your HELP repayment.

So employee earning $80k no HELP debt – employer withholds say $18,750 (to cover tax and medicare)

If you had a help debt your employer would withhold $18,750 tax PLUS an extra 7% (per ATO’s HELP thresholds 2012) so an extra $5,600.

You are still taxed on the full $80,000.

But yes – given the 10% prior to 1 January 2012, and now the 5% from 1 January 2012 voluntary payment – you might be better investing elsewhere.

Scott

Agree that it is correct to tell the ATO you have a HELP debt when you complete your TFN declaration form (when you get a new job).

I more meant for people who had an existing job (say through high school) who had already completed the TFN declaration form. But I agree that the correct thing to do is to advise your employer (who might start taking extra tax out).

Yes – I was aware the voluntary repayment has dropped to 5% – just hadn’t had time to write about it!!
Cheers
Scott

Thanks for the article BTW.

And FYI the 10% bonus drops to 5% after 1 January 2012.

Appreciate your comment. Congratulations on being HECS-HELP free!

Looks like you have used the “last year payment” strategy I mention in the article to get the benefit for your last 2 years paying HECS-HELP.

Paying approx 17k to cancel a $19k debt (saving 1.8k) is a good investment. Instant 10% return on investment. (I disagree with saying the amount saved 1.8k vs amount you’d have to pay next year 10k means its a 20% return on investment – you paid as 1 lump sum: 8,100 instead of 9,000 this year (10% ROI) and 9,000 instead of 10,000 next year (10% ROI)).

Definitely agree with your comment re: trade off between different investments.
I thought I’d unpack that a bit more…

1.You would almost definitely be ahead of keeping it the bank at 6% (although not AMAZINGLY better off, say $750 on your numbers as a complete guess)

But I’m just playing devils advocate –
2. if you just paid the compulsory $9,000 when you lodged your tax return this year (maybe your employer withheld this?) and kept the $17,000 (or $8,000) and bought a unit worth $170k (maybe your parents lend you some deposit money or you got 5% loan 3 years ago when they still offered them) that rose to $210k after 5 years – you’d be better off with the house.

Or (probably more commonly)
3. go to Europe next year and spend 12k on your credit card -and it takes you 5 months to pay it back – you might have been better NOT paying the HELP.

But of course paying off your HECS (or any loan) is a fantastic feeling.

Scott

My outstanding debt was approx $19k but the payout amount was approx 17k.
I calculated that this financial year my compulsoray repayments are about 9k, so my “real outstanding balance” is about $10k which would likely be paid off next financial year anyway through compulsorary repayments.

In my case If I paid off my loan I would save approx 10% on the whole amount (1.8k) which when you compare to the amount I would be forced to pay in the next year provides an approx 20% pa after tax return on investment. I also avoid indexation which I have not accounted for in this calculation.

Whether it is woth paying off or not really is a trade off between alternative investment options and the effective return on investment from paying off the debt through voluntary repayments. A good thing to remember though is that the bonus from paying off the debt is a “risk free” return and also an “after tax return”.

Thanks -yeah the 20% upfront discount generally comes when you have no money (I don’t think anybody ever said uni full time and working was easy!).

And the 10% discount (only when you pay $500 or more) means that if you actually had $500 – there are probably better things you could be using the money for (saving for a house, or to start investing).

Scott