With an estimated three million people adjusting to Higher Education Contribution Scheme (HECS) indexation rate increases, many Australians living and working overseas remain unaware of their HECS repayment obligations, according to tax consulting director at HLB Mann Judd Sydney, Bill Nussbaum.
From 1 July 2023, university graduates earning more than $51,550 per year are subject to an increase in repayment thresholds, reflecting the higher rate of inflation. Australian taxpayers working abroad are also now subject to a HECS repayment, having previously been exempt prior to 1 July 2017.
“In the past, they’ve been excluded from paying the HECS debt. People naively thought they could move overseas and not worry about the debt, but now, they need to declare any foreign income earned to the ATO.
“Previously, they haven’t been required to lodge a tax return in Australia; now, the rules have changed where they are required to disclose their income for HECS purposes, even though it’s not taxable and make a HECS repayment.
“It’s a way for the government to recoup money from people living overseas. The problem is it’s not very well known and hasn’t been widely communicated. It’s a sleeping giant,” he said.
Taxpayers who have a HECS debt and plan to live and work overseas are required to update their contact details and submit an overseas travel notification within seven days of leaving Australia (if you have an intention to reside overseas for 183 days or more in any 12 months), and lodge their worldwide income or a non-lodgement advice.
Mr Nussbaum has seen an increasing number of clients – largely the parents of university graduates and students – seek advice on how best to manage the increased indexation rates, particularly given broader cost of living pressures. The indexation rate increased from 3.9 per cent last year to 7.1 per cent, representing a 12-fold increase since 2021.
“Parents might think they would prefer their children owe them money rather than the government, but a lot of parents don’t understand the system very well.
“Over the last few years, it hasn’t been front of mind for most but with the increased rates coming into effect, people had to consider paying some of it off to reduce the impact of the new 7.1 per cent rate,” he said.
Mr Nussbaum said there remains confusion for many on the application of indexation rates, particularly given that historical low rates meant many were oblivious to the impact of the debt.
The indexing is applied on 1 June and does not account for withholding amounts paid throughout the year. For example, withholding amounts relating to HECS throughout 1 July 2022 - 1 June 2023 will not reduce the balance prior to indexing on 1 June 2023 as these repayments are captured on lodging an FY2023 tax return.
“There will likely be another increase next year, so people will need to assess their individual circumstances and determine whether they want to pay the debt down in combatting the increased indexation or prefer money in their account. It is really dependent on their working and financial situation,” he said.
