As tax season progresses, many Australians are seeing a noticeable shift:
Some people are owing money to the Australian Taxation Office (ATO) for the first time. This is especially true for young Australians who are still repaying their HECS/HELP loans. In this blog article, we’ll look at some common misconceptions and realities about unexpected tax bills and throw light on the truth behind them.
Myth 1: PAYGW Deductions and HELP Debt
Myth: When PAYGW (Pay As You Go Withholding) is deducted from salaries and wages to account for HELP liabilities, the withheld amount isn’t applied to the HELP debt until the end of the income year, leading to indexation being applied to the debt without considering the PAYGW withheld during the year.
Fact: This is a myth. Indexation solely affects the loan balance; it doesn’t impact the year-end tax liability amount.
Myth 2: Salary Sacrificing and HELP Repayments
Myth: When employees engage in salary sacrificing, the reduced salary affects the PAYGW withheld, but the reportable fringe benefit is factored into the repayment income used to determine HELP repayments. This might not be anticipated by affected taxpayers.
Fact: This is a fact. HELP repayment income comprises various components like taxable income, net investment loss, reportable fringe benefits, net rental losses, reportable super contributions, and exempt foreign employment income amounts.
Myth 3: Negative Gearing and Repayment Income
Myth: Negative gearing amounts are included in HELP repayment income, and the rise in interest rates impacts these amounts, catching taxpayers off-guard, especially the younger population with HELP debt.
Fact: This is a fact. Negative gearing influences repayment income, but its impact primarily affects those involved in negative gearing, which might not encompass many young Australians with HELP debts.
Myth 4: Indexation Surge and HELP Debts
Myth: The substantial increase in indexation to HELP debts this year (7.1% compared to previous years) has surprised taxpayers. Indexation has remained relatively low over the past decade, leading to unanticipated financial consequences.
Fact: This is a myth. Indexation solely alters the loan balance and doesn’t influence the year-end tax liability.
Myth 5: The End of LMITO and Taxpayer Realisation
Myth: Taxpayers are only now grasping the termination of LMITO (Low and Middle-Income Tax Offset) after 2021/22, despite ample discussion over the past two years. Either the message didn’t resonate, or the impact wasn’t wholly comprehended.
Fact: This is a myth. Employee PAYGW rates were adjusted to accommodate the abolishment of LMITO. While no refund might occur, tax payable solely due to the LMITO conclusion shouldn’t transpire.
As Australians navigate through tax time, it’s essential to distinguish between myths and facts to better comprehend unexpected tax debts, particularly concerning HECS/HELP repayments. While misconceptions exist about the interplay of PAYGW, salary sacrificing, negative gearing, indexation, and the end of LMITO, understanding accurate information can empower taxpayers, particularly the younger generation, to make informed financial decisions.