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How do I repay my HELP (HECS) debt?

Ever wondered how your HELP/HECS debt gets paid to the government? Are you unsure about these so called ‘thresholds’ and what they mean? We are currently rolling into a new financial year, which means some changes around tax legislation, including your HELP debt.

If you’ve been to uni, you’ve mostly likely racked up a substantial HELP debt. When I went to uni it was called HECS. So HELP stands for High Education Loan Program. 

I decided to write this blog as I actually received 2 calls this week from friends who had the exact same questions around their own HELP debts. They were really confused about at what level of income HELP debt repayments would come into play and what happened if enough tax wasn’t being taken out of their wages. 

Just to note, when I talk about ‘HELP debts’ I’m also meaning a number of other study loans. These include: 

So anytime I mention ‘HELP debt’ in this blog, I’m referring to these as well as the threshold is the same. 

How do HELP debt repayments work? 

In a nutshell once you reach a certain income threshold you have to start repaying your HELP debt based on percentage of your income. Essentially if you’re fresh out of uni and still haven’t found a well-paying job, you’re not going to be forced to pay back that debt until you reach the repayment income threshold.  

Similar to how tax is calculated, the more money you earn the higher your HELP debt repayments will be. So if you are earning a great salary straight out of uni and do this for a number of years, you are going to pay back your HELP debt a lot quicker than, for example, someone who starts on a lower salary and their salary slowly increases throughout their career. 

HELP debt repayment threshold 

Your HELP debt repayment income is different to your taxable income. It’s calculated by: 

Updated HELP debt threshold 

So why is this so relevant right now? Because the threshold changed from 1 July 2019. In the 2019 financial year the repayment income threshold was $51,957. So if your income was under this threshold you didn’t have to repay your HELP debt during the 2019 financial year. Moving into the 2020 financial year the new threshold has dropped down to $45,881. 

So what does this mean? It means that a lot more people are going to be captured under the new threshold and will have to start repaying back their HELP debts! A whole bunch of uni grads are going to have to start paying back their uni debts a lot sooner than expected. 

Here’s the table for the 2020 financial year: 

TFN declaration 

When you are start a new job, it is so important to complete your tax file number declaration correctly. It’s even more important when you have a HELP debt that you tick the correct box. What happens is your employer will enter you into their payroll system as you having a HELP debt, therefore should be withholding enough tax for your normal individual income tax and HELP debt repayment.  

What happens if you don’t tick this box? More likely than not you are probably going to have a tax bill at the end of the financial year because not enough tax is being withheld. So if you are an employee and unsure what you did on your TFN declaration, just check with your employer to see if they have set you up with the correct tax withholding. If they haven’t being withholding correctly, get them to update it ASAP and maybe look at saving some extra pennies for a potential tax debt – so best get some tax agent advice on this! 

What happens if I am self employed? 

Regardless if you are an employee or work for yourself, the rules still apply to you. It just means that you are going to have to put aside some extra money on top of the tax calculated on your taxable income. If you want to learn more about how your tax is calculated, I’ve got a separate blog on my website all about it, so you can check it out. 

What about voluntary repayments 

Yes, you can make voluntary repayments to your HELP debt even if you are under the current repayment threshold. 

How do I check my HELP debt balance? 

The easiest way to check your HELP debt balance it to log onto you’re MyGov account. Once you’ve linked the ATO you’ll be able to see the HELP debt balance. Alternatively, you can call the ATO directly or speak with you trusted tax agent for a balance update. 

Debt increases 

What a lot of people don’t realise is that your HELP debt increases in line with the consumer price index. So your $30k HELP debt from 5 years again, assuming your haven’t made any repayments, is going to be a little more with the CPI increases each year if you check your balance today. Currently the indexation rate was somewhere around 2%. Yes, your HELP debt is an interest free loan, but the indexation is applied to your debt to maintain its ‘real value’ by adjusting it in line with changes in the cost of living. I think of it as the value of a dollar today isn’t the same as the value of a dollar 10 years ago. 

I hope this blog was helpful. Remember, tax legislation is changing all the time, so please double check the HELP debt income threshold rates before making any calculations. If you have specific questions about your own HELP debt, contact your trusted accountant to get the right advice.

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What is the Medicare Levy?

I recently received my Wondersmile aligners and it got me thinking about private health insurance and health care in Australia, more commonly known as Medicare. So I thought I’d give you a quick rundown. 

What’s the Medicare Levy? And how does it get calculated? What happens if I have private health insurance? What happens if I don’t?

Medicare in Australia 

Medicare gives us access to health care here in Australia. Medicare gives us access to: 

  • free or subsidised treatment by health professionals such as doctors, specialists, optometrists, dentists and other allied health practitioners (in special circumstances only). 
  • free treatment and accommodation as a public (Medicare) patient in a public hospital. 
  • 75% of the Medicare Schedule fee for services and procedures if you are a private patient in a public or private hospital (not including hospital accommodation and items such as theatre fees and medicines). 

Medicare levy 

The Medicare levy is an additional tax, which is not included in the individual income tax rates. The current Medicare rate is 2% of your taxable income. 

Medicare levy surcharge 

If your income reaches a certain threshold and you don’t have appropriate level of private health insurance, you may have to pay the Medicare levy surcharge. The additional surcharge ranges from 1% to 1.5% of your taxable income.  

As a single with no private health insurance and your taxable income is less than $90k per year, you won’t have to pay the Medicare levy surcharge. If you are between $90k to $105k you will get charged a surcharge 1% of your taxable income, increasing to 1.25% if you are between $105k to $140k and increasing again to 1.5% over $140k. 

For family and family’s with dependents the threshold goes up for each dependent child. 

Note: The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child. 

Medicare levy example  

Let’s run through an example on how to calculate the Medicare levy on your taxable income. We have James. He’s self employed builder, who doesn’t have private health insurance, is single with no dependents. 

If James had adequate private health insurance, he wouldn’t have to pay the 1.5% Medicare levy surcharge of $2,250.  

In relation to your specific tax scenario, you are going to have to do your own research and work out the cost of private health insurance per year and the cost of the Medicare levy surcharge. 

Private Health Insurance 

What benefits does private health insurance give me? 

Aside from the fact that you won’t have to fork out money for extra tax to pay, it’s going to give you a multitude of benefits. I’m not a health insurance expert, so I’ll leave the nitty gritty details up to them. Definitely shop around and go with a provider that suits your health needs. 

Can I claim Wondersmile? 

This will depend on the type of private health cover you have. Again, I’m no expert, so definitely do you research around getting the right private health insurance for the health procedures you need! 

I hope this blog was helpful. Remember, tax legislation is changing all the time, so please double check the current Medicare levy rates before making any calculations. 

If you have specific questions about your own tax when it comes to the Medicare levy, contact your trusted accountant to get the right advice. Also speak with a trusted health care provider if you have any question in relation to insurance cover and benefits. 

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How does my tax get calculated?

Ever wondered how your individual income tax gets calculated? Or how the Australian taxation system works? Long story short, in Australia the more you earn the more you get taxed.

Tax affects all of us, so it’s important to understand how it works. If we didn’t pay tax, how would we run our schools? Our hospitals? Who would build our roads? 

Our tax in Australia works on a sliding scale. Essentially, the higher your income, the more tax you pay. In this blog we will be running how to calculate tax as an individual wage earner or sole trader. 

Taxable income 

You are probably familiar with the term ‘taxable income’, but just need a refresh on what this means. 

Taxable income is the total of your assessable income less allowable deductions. 

It’s assessable income less allowable deductions. 

Taxable income is the amount your tax gets calculated on. 

Assessable income includes salary and wages, bank interest received and investment income, just to give you an idea. 

Tax free threshold 

You can earn up to $18,200 in a financial year and not pay any tax. This is called the tax free threshold. 

The $18,200 tax free threshold is equivalent to 

$350 per week 

$700 per fortnight 

$1,517 per month 

As soon as you earn over the tax free threshold you start paying tax. 

Individual tax rates 

Your taxable income will determine which tax bracket you fall in and how much tax you pay. Most of us will fall in the middle bracket earning between $37,001 to $90,000. 

Medicare Levy 

The Medicare levy is an additional tax, which is not included in the individual income tax rates. Medicare gives us access to health care. The current Medicare rate is 2% of your taxable income. 

If your income reaches a certain threshold and you don’t have appropriate level of private health insurance, you may have to pay the Medicare levy surcharge. The additional surcharge ranges from 1% to 1.5% of your taxable income. I won’t go into detail on the Medicare levy, but it’s important to remember you maybe be subject to the surcharge if your taxable income is greater than $90,000 as a single person or over $180,000 as a couple or family. 

Tax withheld 

If you are an employee, your employer will be withholding tax from your gross wage to account for you tax payable at the end of the financial year. If you are self employed, it will be up to you to withhold and pay your own tax. 

If you have two or more jobs or other taxable income sources, you may be caught in an unintentional tax trap as a result of the tax free threshold. You may need to check you are not claiming the tax free threshold twice or end up with a tax bill at the end of the year! 

Tax calculation example  

Let’s run through an example on how to calculate tax on your taxable income. We have Stella. She’s an employee admin assistant. 

It’s important to note that your total tax payable will increased or reduced due to: 

  • Tax offsets (if applicable) 
  • PAYG withheld (tax paid throughout the year by your employer) 
  • PAYG instalments (tax paid throughout the year directly by yourself) 
  • HELP debt 
  • Other withholding tax offsets 
  • If you are a resident for tax purposes for only part of the year (not full year) 

I hope this blog was helpful. Remember, tax legislation is changing all the time, so please double check the current tax rates before making any calculations. 

If you have specific questions about your own tax, contact your trusted tax agent (aka accountant) to get the right advice. 

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