It’s pretty clear that the Australian Government is doing whatever it can to clamp down on those Australian’s living and working overseas who are (generally speaking) not paying taxes in Australia. One of the ways they have started to do this is by calling up non-residents to start paying off any of their student debt.
While most expats are familiar with HECS, this applies to HELP (formally HECS), VSL, SFSS, SSL, ABSTUDY SSL and TSL which are all forms of student debt owed to the Australian Federal Government.
Up until relatively recently, Australians could study and train in Australia, before moving overseas and you didn’t have to worry about paying off your HECS debt until you returned or earned Australian-sourced income. Unfortunately, since 2017 that has changed, so it is well worth taking a closer look at your HECS debt and making sure you are paying it off if you are required to do so.
These days, as soon as you move overseas you are required to inform the ATO within seven days. Then it is a matter of going through the process of working out and declaring your worldwide income and submitting it to the ATO by 31 October each year so they can then work out what your loan repayments will be.
An important point to note is that you must first convert your income into Australian dollars and you will be assessed on a sliding scale. The rate of conversion will be the average exchange rate for the Australian income year.
The cut-off point for HECS repayments starts at $45,881. Below that point, you are not required to pay off your debt and it can continue to roll over. When you earn above that level you will start having to pay it off. The initial rate is 1%. That increases all the way up to 10% for those earning AUD $134,573 and above.
The reality is that for many expats who are on significant salaries, they are likely going to fall in the upper end of the scale. If you are earning over AUD $100,000 per year, you will be forced to repay a minimum of 7.5%.
The Government is really clamping down on these repayments and the minimum threshold is also falling rapidly.
When the scheme changed in 2017, the minimum income threshold was only AUD $54,869.00. For those earning upward AUD $100,000 they were forced to only pay back a maximum of 8%. So that too has gradually crept higher.
Calculating Your Worldwide Income
There are three ways in which the ATO allows you to determine your worldwide income. From there they can assess your repayments and/or any other levies that might be due.
One: Simple Self-Assessment Method
Under the self-assessment method, you can simply report your gross income while claiming any standard deductions as determined by the ATO.
Two: Comprehensive Tax Based Assessment Method
This method is effectively the same as if you were doing your taxes on your Australian income. This is based on normal tax rules and you can claim your usual work-related expenses.
This will likely be a more effective method to minimise your assessable income for the ATO as you have more control over your deductions. If you are in a job with minimal deductions then it won’t likely have a big impact.
Three: Overseas Assessment Method
This is a method you can use when the tax year of the country you are currently residing in is different to that of Australia. The UK would be a good example as it runs from 6 April to 5 April.
This method means you report the amount that appears on your foreign income tax assessment. You can’t claim any further deductions using this method as they should have theoretically have been accounted for already. Even if there are differences in the allowable deductions between countries.
It’s worth noting that a taxpayer who is a resident for Australian tax purposes is taxed on their Australian sourced and worldwide income. If you are considered a non-resident, you are only taxed on your Australian-sourced income.
So clearly the ATO is doing their very best to try and maximise their tax dollars and getting expats to pay-off their debts faster is one way for them to do that.
As with most financial and tax matters, it is always a good idea to seek professional advice as there can be significant benefits by structuring your finances in the most effective manner for your personal situation. So please speak to a professional.