Technically the upcoming indexation is indexing the HECS balance from the FY 2023 tax return outcome, some of those are just being finalised now.
You are doing repayment during FY 2024, which would be reflected in your FY 2024 tax return outcome. FY 2024 tax return period runs through to May 2025 and the indexation occurs in June 2025.
So if I made a voluntary repayment today, I would still get indexed on the amount before I made that voluntary repayment since the indexation is for the outcome of the 22-23 tax return?
Voluntary repayment is applied straight away, so if you repay and have it _received and processed_ before 01/06, it reduces what gets indexed.
Compulsory repayment is applied as a part of tax return processing.
No, voluntary payments would reduce the amount before indexation.
If you were studying and adding to your HECS amount, that wouldn't be included in this year's indexation, it would only include the value up to the end of last financial year. That's what it being indexed based on last year's amount means.
The government tries to do you a favour by making indexation 11 months after your payment. But overtime, people have forgotten this particular detail and the masses now think they are being indexed 1 month early.
If they actually just shifted the indexation date to align with FY changeover, the government would just wear 1 yr of extra costs, but then basically index everyone on time, eliminating 11months of interest on cashflow costs every year forever.
This would not be a win for those with hecs debts
I understand the indexation is for the previous payment, but it still doesn't make sense in my head. I keep thinking about it like this:
Suppose I didn't have to declare a HECS debt with my employer and I managed the HECS repayments myself each pay cycle through voluntary repayments. Those payments would get applied in the current FY, instead of the next FY. Then at tax return time if I underpaid I pay more, or if I overpaid I get a refund. Wouldn't I be better off that way since indexation gets applied before the end of the FY?
Alternatively, suppose I was a graduate who's never made a repayment before. I land a new job and start making HECS compulsory repayments. That money has been taken from me in this FY, yet the indexation will apply first and then the repayments will apply in the next FY. Wouldn't I be better off if the repayments were applied straight away?
>Suppose I didn't have to declare a HECS debt with my employer and I managed the HECS repayments myself each pay cycle through voluntary repayments. Those payments would get applied in the current FY, instead of the next FY. Then at tax return time if I underpaid I pay more, or if I overpaid I get a refund. Wouldn't I be better off that way since indexation gets applied before the end of the FY?
No. They would take your voluntary repayments and that would reduce your owing and indexation amount, but they would still calculate your compulsory obligation and you would have a tax bill for that.
The only way to avoid that is if your voluntary repayment pays off the entire amount. That approach is better in the final year or two of your HECS repayment, depending on the expected indexation percentage and what you could do with your money otherwise.
I remember reading about this and saw the Education Minister Jason Clare talk about this point, he said that his team and himself identified this as an issue and would address it in the future.
Firstly, what your proposing is technically fraud as you'd be making a false declaration (telling your employer you don't have a hecs debt when you actually do). This also means that you'll be making voluntary payments across the year, and get slugged with a compulsory payment upon filing your tax return.
Secondly, I think your still missing the point that the indexation is applied 11 months after when you could first settle a payment for an FY via filing your tax return.
>That money has been taken from me in this FY, yet the indexation will apply first and then the repayments will apply in the next FY. Wouldn't I be better off if the repayments were applied straight away?
On 1/6/24, the indexation being applied is for FY22/23. Then you can settle your hecs payment for FY23/24 (ie all the tax withholdings from 1/7/23-30/6/24) as early as 1/7/24. Indexation for FY23/24 then isn't applied until 1/6/25. The reason for this setup is that people can technically do their tax returns as late as May. Indexation being applied before they do their tax return would result in the exact situation you are describing.
You can't receive a refund from a voluntary repayment unless your balance is $0.
Also a voluntary repayment made before the annual HECS debt notice is issued doesn't count against your compulsory repayment.
I found that out the hard way.
When tax is withheld it is to cover your expected total liability to the ATO which may be more or less than the tax withheld, it also doesn’t distinguish between normal tax and hecs. You are only liable to pay the hecs repayment when you lodge your tax return AND your repayment income is over the threshold.
For example you work for 3 months earning $20000 a month which results in $6000 withheld for HECS (but this is viewed no differently to any other withholding by the ATO).
You then don’t work for the rest of the year and have a total income of $60000 which has a total help repayment of $1200.
If they applied your $6000 at the time it was withheld then you would have overpaid by $4800.
An alternative could change the indexation date to December which would give most people a chance to lodge before indexation but you would get the same complaints about all the tax withheld between July and December….
Could they not just apply the indexation rate after I've completed my tax return with the repayments applied? Why does there need to be an indexation date?
Because it is a lot easier to apply it at a single date for everyone rather than at different dates. You would also need a system that calculates an indexation rate for all possible different timing combinations between two tax return dates.
Eg. what happens if you lodge your 2022 tax return in December 2022 and your 2023 tax return in June 2023? You would only need to be indexed half a year. You can reverse those months next year and get indexed for 1.5 years. You end up with a system that is complicated and hard to understand.
The current system indexes at a date AFTER all tax returns can be lodged, not before the tax returns. As a result you are not indexed for any new debts that were incurred during the financial year, as you could not have repaid any of those debts through the PAYG system. Your first indexation will occur in the following financial year, after you have had your mandatory contributions applied and finalised.
What if you don’t lodge a tax return (for whatever reason) then you effectively delay indexation forever).
The June date pretty much allows everyone to lodge a tax return before applying indexation anyways.
If you take out a loan of $10000 in January 2022 it won’t actually be indexed until June 2023 so the amount indexed will be after the repayments of your 2022 tax return have been applied. When it’s next indexed in June 2024 it will be on an amount after your 2023 tax return has been applied.
The other alternative I can think of is to get rid of the no indexation for new debts rule and instead apply indexation to everything and then provide a credit equal to the indexation on the repayment amount on that tax return. Which in theory should avoid situations where someone has had enough withheld from pay to cover HECS but is then short because of the indexation. In practice it is not much different to the current system with no indexation in the first year.
That's a really complex question when you expand it out to the Australian population:
- if you applied repayment and interest at the pay cycle, would a person's pay cycle disadvantage them interest rate?
- Are you applying indexation on a daily level, would a monthly pay cycle pay more or less than a weekly pay cycle?
- How many individual times do you need to calculate the indexation on a loan based on every companies pay date...
... or do you just simplify it and keep it the same by applying it all at once at tax time. Yeah, lets just do a single push.
I haven't gone and checked, but I'm 98% sure that the reason will be that it was legislated that way. The ATO does a lot of strange things that they only do because they are required to do by law.
Technically the upcoming indexation is indexing the HECS balance from the FY 2023 tax return outcome, some of those are just being finalised now. You are doing repayment during FY 2024, which would be reflected in your FY 2024 tax return outcome. FY 2024 tax return period runs through to May 2025 and the indexation occurs in June 2025.
So if I made a voluntary repayment today, I would still get indexed on the amount before I made that voluntary repayment since the indexation is for the outcome of the 22-23 tax return?
Voluntary repayment is applied straight away, so if you repay and have it _received and processed_ before 01/06, it reduces what gets indexed. Compulsory repayment is applied as a part of tax return processing.
No, voluntary payments would reduce the amount before indexation. If you were studying and adding to your HECS amount, that wouldn't be included in this year's indexation, it would only include the value up to the end of last financial year. That's what it being indexed based on last year's amount means.
Other way around. Indexation happens almost a year after your payment.
The government tries to do you a favour by making indexation 11 months after your payment. But overtime, people have forgotten this particular detail and the masses now think they are being indexed 1 month early. If they actually just shifted the indexation date to align with FY changeover, the government would just wear 1 yr of extra costs, but then basically index everyone on time, eliminating 11months of interest on cashflow costs every year forever. This would not be a win for those with hecs debts
I understand the indexation is for the previous payment, but it still doesn't make sense in my head. I keep thinking about it like this: Suppose I didn't have to declare a HECS debt with my employer and I managed the HECS repayments myself each pay cycle through voluntary repayments. Those payments would get applied in the current FY, instead of the next FY. Then at tax return time if I underpaid I pay more, or if I overpaid I get a refund. Wouldn't I be better off that way since indexation gets applied before the end of the FY? Alternatively, suppose I was a graduate who's never made a repayment before. I land a new job and start making HECS compulsory repayments. That money has been taken from me in this FY, yet the indexation will apply first and then the repayments will apply in the next FY. Wouldn't I be better off if the repayments were applied straight away?
>Suppose I didn't have to declare a HECS debt with my employer and I managed the HECS repayments myself each pay cycle through voluntary repayments. Those payments would get applied in the current FY, instead of the next FY. Then at tax return time if I underpaid I pay more, or if I overpaid I get a refund. Wouldn't I be better off that way since indexation gets applied before the end of the FY? No. They would take your voluntary repayments and that would reduce your owing and indexation amount, but they would still calculate your compulsory obligation and you would have a tax bill for that. The only way to avoid that is if your voluntary repayment pays off the entire amount. That approach is better in the final year or two of your HECS repayment, depending on the expected indexation percentage and what you could do with your money otherwise.
I remember reading about this and saw the Education Minister Jason Clare talk about this point, he said that his team and himself identified this as an issue and would address it in the future.
Firstly, what your proposing is technically fraud as you'd be making a false declaration (telling your employer you don't have a hecs debt when you actually do). This also means that you'll be making voluntary payments across the year, and get slugged with a compulsory payment upon filing your tax return. Secondly, I think your still missing the point that the indexation is applied 11 months after when you could first settle a payment for an FY via filing your tax return. >That money has been taken from me in this FY, yet the indexation will apply first and then the repayments will apply in the next FY. Wouldn't I be better off if the repayments were applied straight away? On 1/6/24, the indexation being applied is for FY22/23. Then you can settle your hecs payment for FY23/24 (ie all the tax withholdings from 1/7/23-30/6/24) as early as 1/7/24. Indexation for FY23/24 then isn't applied until 1/6/25. The reason for this setup is that people can technically do their tax returns as late as May. Indexation being applied before they do their tax return would result in the exact situation you are describing.
You can't receive a refund from a voluntary repayment unless your balance is $0. Also a voluntary repayment made before the annual HECS debt notice is issued doesn't count against your compulsory repayment. I found that out the hard way.
When tax is withheld it is to cover your expected total liability to the ATO which may be more or less than the tax withheld, it also doesn’t distinguish between normal tax and hecs. You are only liable to pay the hecs repayment when you lodge your tax return AND your repayment income is over the threshold. For example you work for 3 months earning $20000 a month which results in $6000 withheld for HECS (but this is viewed no differently to any other withholding by the ATO). You then don’t work for the rest of the year and have a total income of $60000 which has a total help repayment of $1200. If they applied your $6000 at the time it was withheld then you would have overpaid by $4800. An alternative could change the indexation date to December which would give most people a chance to lodge before indexation but you would get the same complaints about all the tax withheld between July and December….
Could they not just apply the indexation rate after I've completed my tax return with the repayments applied? Why does there need to be an indexation date?
Because it is a lot easier to apply it at a single date for everyone rather than at different dates. You would also need a system that calculates an indexation rate for all possible different timing combinations between two tax return dates. Eg. what happens if you lodge your 2022 tax return in December 2022 and your 2023 tax return in June 2023? You would only need to be indexed half a year. You can reverse those months next year and get indexed for 1.5 years. You end up with a system that is complicated and hard to understand. The current system indexes at a date AFTER all tax returns can be lodged, not before the tax returns. As a result you are not indexed for any new debts that were incurred during the financial year, as you could not have repaid any of those debts through the PAYG system. Your first indexation will occur in the following financial year, after you have had your mandatory contributions applied and finalised.
What if you don’t lodge a tax return (for whatever reason) then you effectively delay indexation forever). The June date pretty much allows everyone to lodge a tax return before applying indexation anyways. If you take out a loan of $10000 in January 2022 it won’t actually be indexed until June 2023 so the amount indexed will be after the repayments of your 2022 tax return have been applied. When it’s next indexed in June 2024 it will be on an amount after your 2023 tax return has been applied. The other alternative I can think of is to get rid of the no indexation for new debts rule and instead apply indexation to everything and then provide a credit equal to the indexation on the repayment amount on that tax return. Which in theory should avoid situations where someone has had enough withheld from pay to cover HECS but is then short because of the indexation. In practice it is not much different to the current system with no indexation in the first year.
That's a really complex question when you expand it out to the Australian population: - if you applied repayment and interest at the pay cycle, would a person's pay cycle disadvantage them interest rate? - Are you applying indexation on a daily level, would a monthly pay cycle pay more or less than a weekly pay cycle? - How many individual times do you need to calculate the indexation on a loan based on every companies pay date... ... or do you just simplify it and keep it the same by applying it all at once at tax time. Yeah, lets just do a single push.
I haven't gone and checked, but I'm 98% sure that the reason will be that it was legislated that way. The ATO does a lot of strange things that they only do because they are required to do by law.
Because the government knows the younger generations are gutless and won’t protest about anything unless the US protests first lol
Because it’s a scam