Tax Return Arrears

Some taxpayers lodge many years of arrears at once. For those with HELP debts there is an issue they should be aware of. It can trigger HELP repayments well in excess of the expected values.

Example : Mary lodges 10 years of returns. In 5 of the years - the earliest years, she had high income. In the more recent years Mary has raised her kids and also undertaken study and run up a help debt. However Mary is confident her income is well below the repayment thresholds.

Problem : Mary would be assessed HELP repayments on the 5 years of high income despite their being no debt at the time of those financial years. The ATO system follows the law and calculates a repayment based on debt known at the time the return is assessed and looks back to the debt census date immediately prior to that lodgement (ie 31 March 2016 for the 2016 year).

Mary cant object to the issue as the ATO merely follow the law which prescribes this approach.

Another concern with late lodgement is that Mary would lose capacity to claim Family Tax Benefits if eligible. Taxpayers with lodgement arrears cannot receive Centrelink benefits. Centrelink rely on accurate taxable income values and this integrity measure is intended to protect the Commonwealth from overpayment.

 

I just had this happen. I studied my MBA last year, but forgot to mention it to my employer - so no HELP payments were made.

My anticipated $5k refund ended up being a $13,337.30 ATO debt.

To make that hurt even more, 3 is (was) my lucky number!

 

Gordo I had a client do same thing BUT he had studied two courses over 8 years and every year had that issue. He though th employer was deducting more tax...Not. His HELP debt became a actual tax debt. $20K or so. They were real good about it and he paid it off in 18 months and they then remitted 100% of the interest for being so good about it.

I guess there are two lessons in HELP debts

1. Ensure the employer deducts more tax (dont assume rental losses will help. They wont)
2. Lodge all returns on time

 

Oh and I found another....Did you know that NRAS credits can be cancelled retrospectively !! But if you claim them on time they dont seek recovery or even amend it. Its VERY complex and important that NRAS claims are made on time too.

 

Hi Paul,

This is interesting.

Can you PM any decisions or rulings on the literal interpretation of HELP study debt repayments interacting with late lodgement ?

This website won't permit me to start a conversation with you for some reason.

Cheers,

Rob

 

Rob - I block PMs through PC for privacy reasons (Moderators can read them)
My email is in the footer

I have been looking at this in my spare time (strange hobby).
s106O of the Higher Education Funding Act 1988 appears a likely cause. It seems to attribute a prior year unpaid HECS debt as a current year HECS debt so that if a prior year assessment gets missed (due to late lodgement) then the new accumulated debt occurs at the date of the assessment based on the debt at 1st June preceeding that notice...... Am I close ?

ITAA36 s163B ties to the HEFA as a tax liability described in that section.

 

Yes, that could be a literal interpretation for s.154-1 of the Higher Education Support Act 2003.

s.154-1(1)(a) determines if repayment income for an income year exceeds the threshold; and

"s.154-1(1)(b) on 1 June immediately preceding the making of an assessment in respect of the person's income of that income year, the person had an accumulated HELP debt; ... "

My reading ...

The use of the phrase "that income year" suggests the existence of a HELP debt back at the 1 June prior to the end of the relevant income year (as opposed to the year the assessment is first raised for a late assessment).

The amount payable is worked out in s.154-20 by reference to the repayable debt for an income year.

"Repayable debt" in s.154-15 is the accumulated HELP debt in relation to an income year reduced by amounts repaid, and reduced by any amounts previously assessed (even if not yet paid, but the GIC is a lot harsher than HELP debt indexation).

Therefore I think problems could arise if assessments are made out of chronological order, such as failure to lodge some earlier returns but a current year assessment is made. The situation in your original post.

I would hope that ATO administrative practice would be to amend other assessments once the late ones are lodged, but there is no explicit requirement. I am not aware of any such practice since I am not involved in this area. However, It would seem more equitable and suitable for treatment of amended assessments where culpability is usually absent or reduced.

Support for this approach is implied by s.154-60 which specifies that Part IV of ITAA36 is to apply as far as possible, i.e. treat as an income tax debt.

It causes enough headaches for payroll staff in advising employees of possible retrospective HELP debt repayment liabilities if they work too much overtime and trigger the repayment threshold for the current year !

Yes, you have a strange hobby but at least you are interested in possible client outcomes.

 

Thanks Rob ...No my clients were all in chrono order but all late and I agree on that observation if they were made out of order as reasonable grounds to object (perhaps if the quantum of repayment is excessive). Yes switching from HELP account to tax debt means GIC occurs earlier and is not indexed or deferred as my client found. If my client had lodged ontime they would have had refunds for 5 years and a current debt but now its 100% paid off by tax refunds from all the years before they even attended uni.

Seems the repayable debt rule is the trap.



I was trained in tax thinking by someone in law who taught me to enquire "why".

 

Even worse.

Being treated as a "tax-related debt", it seems the running balance account applies.

This would mean any refunds may be applied against any other "tax-related debt" including other indirect taxes etc.

Asking "why" often involves studying the history and evolution of the legislation, including parliamentary debates, political climate, discussion papers, etc. This can be a surprising amount of work compared to the modest charge-out rates a public practice is able to recover from clients.

 

Spot on. Yes even intrinsic materials like EMs and EMs to first bills etc can be very insightful into the nature of tax law development. I read why a SMSF is limited to 4 members and not 5 or even 6 from this process....A EM (typed) to a bill that became the Occupations Superannuation Standards which was the start of SISA several years later. (Located in the Parliament House library). That and Hansard indicate a circular problem.

Reason : 5 would be difficult to address unanimous decision making and lead to risks that members outvote one and another rather than mutually deciding. (I note the issue of a three member fund was never raised or discussed !)