How you are forced to repay your HELP debt – what is your HELP repayment income
When you lodge your tax return, you will be forced to pay a percentage of your income towards your HELP debt (between 4-8%) if you earn over a specified amount. The threshold which you are required to repay your HELP debt increases each year and the thresholds and repayment percentages are published by the ATO.
Specified HELP repayment income amount
If you earn over $47,196 (2012 tax return) or $49,096 (2013 tax return), then you will have to repay 4% of your income, which gradually increases by 0.5% until 8% of your income above $87,650 (2012) or $91,178 (2013).
Note that the threshold is not calculated on taxable income, but help repayment Income.
Tax office calculates HELP repayment income
The tax office (or e-tax) calculates your HELP repayment income when you prepare & lodge your tax return. So you don’t really need to know, except that your HELP income might be higher than your taxable income.
What is HELP repayment income?
HELP repayment income is equal to taxable income if you don’t have any of the below. If you have any of the below items HELP repayment income will be higher than taxable income and you will have a higher HELP repayment.
HELP repayment is taxable income PLUS rental property & investment losses, fringe benefits, reportable super and exempt foreign employment income.
What does this mean? Why isn’t HELP repayments calculated on taxable income?
Basically HELP repayments are calculated so that you can’t use most of the normal tricks to reduce your taxable income to also reduce your HELP repayment.
How do you calculate HELP repayment income from Taxable Income
So, a negatively geared rental property, or losses from purchasing shares (e.g. a margin or investment loan), fringe benefits like use of a work car or salary sacrificing into super (that is above the required 9% your employer has to make), are added back to your taxable income to work out your HELP repayment income.
Sam has $70,000 taxable income which includes $5,000 rental property loss and he also gets a car fringe benefit of $5,000 and he salary sacrificed $5,000 above the 9% employer superannuation.
So Sam’s HELP repayment income is $70,000 taxable + rental loss $5,000 + fringe benefit (Car) $5,000 + salary sacrificed super $5,000 = $85,000.
This means when Sam lodges his 2013 tax return instead of paying 6% of $70,000 ($4,250) he will have to repay 7% of $85,000 ($5,950) – a $1,750 increase.
Employer withholding to repay HELP debt
Once you tell your employer that you have a HELP debt they will calculate how much extra to withhold from your salary. The extra they withhold is paid to the ATO as PAYG Withholding (just like regular tax taken from your salary). So the amount is not directly going to pay off your HELP debt until you lodge your tax return.
For example, if John has a HELP debt of $5,000, and earns $80,000 his employer will withhold an extra 7% ($5,600) of his salary to go towards HELP repayments.
But if John doesn’t lodge his tax return before 1 June, then he gets charged inflation on the interest, even though the amounts have been withheld by his employer. In John’s case his employer has actually withheld more than the $5,000 debt – John will get a $600 refund when he lodges his return. He should also tell his employer when he expects to have paid his HELP debt.
1 June – date when the ATO calculates inflation on any HELP debts over 1 year old
31 October – date when tax returns are due when you don’t have a tax agent
15 May – date when tax return are due when you do have a tax agent.