Tax Tip 270: Lodging Income Tax Returns Late and HELP Payments

If you are going to study when you have not done previous year’s tax returns then there is a trap for young players that could catch you out if you use HELP (Higher Education Loan Program) to pay for your course.


Example

In Jan 2020 Bart started studying medicine at uni and was not working, living on savings while studying. Instead of paying for his course himself, Bart decided to take advantage of the HELP scheme which is similar to borrowing from the government. The government will pay for Bart’s course fees with Bart making extra tax contributions in financial years where his income is over the threshold for repayment.


On starting the course Bart had a HELP debt. As soon as he went over the census date


But Bart hadn’t lodged his 2018 and 2019 tax returns. He was earning $100,000 taxable income during those years and was still owed money as he expected the ATO to refund some tax his employer had withheld because of his various deductions.

In 2021 he lodged his previous tax returns and caught up with his tax reporting requirements.

The ATO made Bart pay extra tax on his 2018 and 2019 years because of his HELP debt. This is in spite of him incurring the HELP debt in 2020 and onward tax years. This amounted to an extra $14,000 in tax which he didn’t expect.

Not only didn’t he get a refund he had to pay extra tax which ate into his savings so he will now have to work while studying.


Why is this so?

He owed a debt at the time the tax return was assessed so because his taxable income was over the threshold for these tax yeas at the time, he was assessed Bart will have to pay extra tax that he was no expecting. Basically, Bart was liable for the debt at the time of the tax return so the extra tax applies.

Section 154-1 of the Higher Education Support Act 2003
HIGHER EDUCATION SUPPORT ACT 2003 - SECT 154.1 Liability to repay amounts

Had Bart done the other tax returns before he started studying he could have avoided having to pay HELP for many years to come.

 

Yes the trap is the ":making of an assessment" rule rather than a HELP debt in respect to a historical date. The HELP system is basically reset on 1 June of each year and that balance can be applied against any assessments issued after that date. Can also catch out persons with amended returns where the ATO disallows etc. The amendment date is relevant not the original assessment date.

A further concern is non-residents. If they dont advise the ATO of their change of residency AND adjust their MyGov accordingly to remove the SMSF functions they can accumulate repayments each and every year while non-resident. Recent changes to HELP etc mean non-residents must report their worldwide income and this isnt taxed BUT will be used to determine their minimum repayments of the debt.
Calculating non-resident foreign income for HELP and TSL debtors

 

Bart finishes his course becomes a radiologist and earns 750k per annum.

Bart doesnt even think about his tax debt anymore

 

Reminds me of two (married) relatives. Both dentists. Their HELP / Supplement debts once looked like a mobile number.
.

 

I find that those on the higher incomes think about their tax even more - cause they pay so much.

 

But i guess the HELP debt would be wiped out in 2 to 3 years at that income

 

Sounds like this couple lives in Shelbyville, not Springfield.

 

Gosford. Much the same.
They are spouses not cousins or from the apple isle