How does HECS work with tax refunds?

Hi All,

This is just a quick one, I am sure someone on here will be in the same boat and it doesnt hurt to ask :)

Lets say I have a $10,000 HECS debt (which I don't, but lets just say I do). Lets also say I earn more then the minimum HECS specifies so I need to repay my HECS debt which is deducted from my weekly wage.

I have been told by someone who has a HECS debt who is earning more than the minimum that when they get a tax refund, the taxman basically says 'you get $X refund this year. Thanks, that goes straight on your HECS' and you have no say on this.

Is this correct? If you get a refund is it mandatory for the refund to go on your HECS debt? Surely that is a little harsh for people who have a HECS debt!

Thanks!
 
It does sound a bit harsh - but on the other hand, you only get a refund if you have no outstanding debt - eg a centrelink debt so it might the same with HECS too!
 
Yes. If you have an outstanding HECS debt any refund you are entitled to will automatically go towards that debt unless you are earning less than the minimum income needed to pay it back.

I am in the same boat with an old student loan, but my refund is safe because I have been able to negative gear my taxable income below the required income level for repayments.
 
I am in the same boat with an old student loan, but my refund is safe because I have been able to negative gear my taxable income below the required income level for repayments.

Ok thats a valid point. Looking at the HECS site, the threshold before you need to start paying HECS is $38,149 (gross I believe?). So in saying that:

Lets say I earn $45,000 a year (gross)
If I had a -VE property and my loss was >$8000 a year the tax refund would be all mine?
However if the losss was only $6000 a year 100% of the tax refund would go towards the HECS debt?
 
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Yes. If you have an outstanding HECS debt any refund you are entitled to will automatically go towards that debt unless you are earning less than the minimum income needed to pay it back.

I am in the same boat with an old student loan, but my refund is safe because I have been able to negative gear my taxable income below the required income level for repayments.

I'm no accountant so I'm not qualified to answer this, however I was in this situation.
I had a hex debt and I was able to receive a refund.

According to the ATO hecs website; http://www.ato.gov.au/individuals/content.asp?doc=/content/76482.htm&page=14&H14
the amount of hecs that you repay is calculated from your repayment income. It makes no mention of all tax refunds having to be contributed towards your hecs debt.
 
Your hecs income is worked out on taxable income plus negative gearing added back, similar to centrelink FTB.

The thing that suck is if you sell a property, you have to pay HECS from the profit because of Capital Gains
 
Hecs

Here's how it works.

Your employer takes out a certain % of your pay for PAYE and HECS. At the end of the year when you file your return, you'll have know your assessable income. Based on that, you can definately work out your tax liability and your compulsory HECs liability. If witheld payments are more than your compulsory HECs and PAYE payments, then you get a refund - what you do with your money is up to you. And vice versa.
 
Your employer takes out a certain % of your pay for PAYE and HECS. At the end of the year when you file your return, you'll have know your assessable income. Based on that, you can definately work out your tax liability and your compulsory HECs liability. If witheld payments are more than your compulsory HECs and PAYE payments, then you get a refund - what you do with your money is up to you. And vice versa.

That sounds fair enough!

So going back to my example above, correct me if I am wrong but this is how I understand it:

Situation A - You have not paid enough HECS based on your assessable income. This could be done?

Assessable income = $45,000 (gross)
Compulsory HECS contribution for that range= 4.5% ($2025)
Assume you have paid $1500 to HECS over the year which has been taken out of your weekly wage and you tax return is $2000, you could do:

$2000 - ($2025 - $1500) = $1475 tax return (and $525 goes to HECS)

Where:
$2000 is your tax return
$2025 is your compulsory HECS contribution
$1500 is what you have contributed to your HECS debt so far this year (from your weekly wage)


Situation B - For the year, you have paid more than your compulsory contribution to HECS from your weekly wage
You get 100% of your tax refund to yourself!


Correct? Or am I still missing something?
 
Hi

I still have a HECS debt and get a tax refund each yr.

If your employer is deducting the correct additional HECS repayment % from your pay (& correct tax) and you don't have any other deductions, you should come out fairly even. But if you have additional deductions (ie study costs, MV kms) etc which effectively reduce your taxable income as per your tax return you should get a refund because HECS and tax withheld have been calculated based on your income before deductions.
 
hey learner... that's correct. the system is a little unfair because the index rebasing is done in June (i think) and you only get your refund in aug-oct.

brays is right as well.
 
Yes, that sounds right. If your employer is taking HECS out of your weekly wage you might get to keep some or all of your refund - I was not taking that into account. In regards to my student loan, my employer was not taking payments out of my gross income each week, so if I was not negative geared and had a refund it would all go into paying the debt.

I would suppose that if you did have payments going out each week, and you were negatively geared below the minimum repayment amount, you would get all your payments back as a refund.
 
Perfect! Another case closed by the Somersoft Community :) I hope this has also helped others out there that had the same question.

Thanks again to everyone for their help!
 
Hi All,

This is just a quick one, I am sure someone on here will be in the same boat and it doesnt hurt to ask :)

Lets say I have a $10,000 HECS debt (which I don't, but lets just say I do). Lets also say I earn more then the minimum HECS specifies so I need to repay my HECS debt which is deducted from my weekly wage.

I have been told by someone who has a HECS debt who is earning more than the minimum that when they get a tax refund, the taxman basically says 'you get $X refund this year. Thanks, that goes straight on your HECS' and you have no say on this.

Is this correct? If you get a refund is it mandatory for the refund to go on your HECS debt? Surely that is a little harsh for people who have a HECS debt!

Thanks!

What's with these hypothetical questions? Nothing to be shy about having a HECS debt.
 
Ahmad Azimi; said:
What's with these hypothetical questions? Nothing to be shy about having a HECS debt.

I dont have a HECS debt. If I did, I would just out and say it. As you said, nothing to be shy about. I was asking on behalf of someone I know but had no idea of their wage etc. so just wanted a rough idea of how it worked.
 
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