Government assistance for students in the form of HECS-HELP debts are indexed to CPI each year on 1 June. Over the past 10 years the indexation of these balances has not caused concern as the CPI has mostly been under 2%.

However, in 2023 the rate is set to skyrocket to around 7% (the exact rate is yet to be determined). So whilst interest is not applied to these debts, the rate of inflation will see these debts increase significantly to keep pace with this rate, and for the first time in quite a while, Taxpayers will be considering HELP debts as more than an afterthought when it comes to their planning.

Compulsory Repayments

Compulsory amounts of HELP debts are repaid on lodgement of the individual’s tax return.

The amount applied is a percentage (the “Repayment Rate”) multiplied by “Repayment Income” (RI). A full table of 2023 repayment thresholds and rates can be found on the ATO website, but as a guide, if an individual has repayment income below 48,361, their rate is Nil.

For someone on $65,000 it is 3%, and for $120,000 it is 8.5%. As such, someone with a $120,000 salary would repay an amount of 0.085 * 120,000 = $10,200 on lodgement of their tax return, or the balance of the loan if it was below this amount. 

Consideration to Voluntary Repayments

Scope exists for voluntary repayments of HECS-HELP debts.  Whilst there is no discount for early repayment, if the amount is paid prior to indexation on 1 June, the debt will avoid the CPI increase.  This payment may be particularly attractive to those approaching the final payments of their debt and may have effectively remitted sufficient to the ATO through their PAYG Withholding payments in their payroll. 

PAYG Withholding relating to HELP debts effectively means repayments are paid in advance of the indexation, with the credit not appearing on the loan until the lodgement of the tax return. This means that if a HELP debt is fully repaid by way of voluntary repayment in May 2023, then any additional withholding will be refunded on lodgement of the 2023 tax return.

For Example

Take our example above of an individual with a $120,000 income.
If their remaining HELP debt at 1 June 2023 was $10,200, the indexation applied at 7% would be $714.

If the balance was paid off completely in May, the indexation would be nil and the Taxpayer could advise their payroll to cease PAYG Withholding relating to HELP, immediately starting to make up for the cash payment brought forward to make the voluntary repayment.

Lodge in July, and ceteris paribus, a refund would be received of $10,200 (the amount remitted in payroll) which offsets the $10,200 paid voluntarily. The end result being a cash neutral position and no HELP debt.

Don’t make the payment and the debt increases to $10,914.  After the return is lodged, a nil cash position is still obtained, but with a remaining debt of $714.
 
Political Pressure on Indexation & Other Considerations

Such a high level of indexation is attracting considerable media attention, however, given the state of the budget and the fact the increase is written into law already, it is not something that is expected to be addressed in the upcoming budget or for relief to be provided.

While the level of indexation is high this year, there is no way to know where CPI will be over the coming years and HELP debt may, once again, be one of the cheapest sources of debt to have.

Not Financial Advice

Harris Black do not offer financial advice and can only offer factual information on this topic.

Please do not hesitate to contact your Harris Black team member should you require any assistance or further clarification.

21 April 2023

March monthly activity statements – final date for lodgement and payment.

28 April 2023

Quarter 3 (January-March) activity statements – final date for lodgment and payment.

30 April 2023

Quarter 3 (January-March) TFN report closely held trusts for TFNs quoted to a trustee by beneficiaries – final date for lodgement.

12 May 2023

Quarter 3 (January-March) activity statements lodged electronically- final date for lodgement and payment.

21 May 2023

Lodgement due date for your FBT return. For 2021, if you prepare your own return you can lodge by 25 June without incurring late lodgment penalties. Final date to pay when you prepare your own FBT return.

The ATO announced changes to working from home (WFH) deductions.

Taxpayers can choose either the ‘actual cost’ or the ‘fixed rate’ method to claim WFH deductions. Only the fixed rate method is changing. The revised fixed rate method applies from 1 July 2022 and can be used when taxpayers are working out deductions for their 2022–23 income tax returns.

From 1 July 2022 to 28 February 2023, the ATO will accept a record representing an estimate of the total number of hours worked from home (such as a 4-week diary). From 1 March 2023 onwards, taxpayers must keep records of the total number of hours they actually work from home.

Revised fixed rate method

The changes are:

• The cents per work hour have increased from 52 cents to 67 cents and it covers energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables.
• Expenses that can be claimed separately:
  • Depreciation of equipment used while WFH.
  • The repairs and maintenance of these assets.
• The costs associated with cleaning a dedicated home office.
• Taxpayers are not required to have a dedicated home office to claim WFH expenses under this method.
• Taxpayers need to keep a record of all the hours worked from home for the entire income year. The ATO will not accept estimates, or a 4-week representative diary or similar document, under this method from 1 March 2023.
• Records of hours worked from home can be in any form provided they are kept as they occur, for example, timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year.
• Records must be kept for each expense that taxpayers have incurred which is covered by the fixed rate per hour.

Actual cost method

The actual cost method hasn’t changed. Taxpayers can claim the actual work-related portion of all running expenses.

Superannuation Guarantee (SG) payments for employees are due on the 28th day after the end of each quarter. The penalties for making this payment late are severe and rigorously enforced by the ATO.

Even if a payment falls one day late, the additional cost will always include:

1. The requirement to lodge a Superannuation Guarantee Charge (SGC) statement.
2. An admin fee per employee
3. Interest
4. A requirement to pay super on all salaries and wages (including overtime)
5. Lost tax deduction for the payment

Other possible costs:

6. Penalties up to 200% of the “Super Guarantee Charge”
7. Director’s personal liability
8. Possible criminal charges for directors  
9. Other considerations

Penalty number 1: The Superannuation Guarantee Charge Statement

This time-consuming form needs to be lodged with the ATO any time the SG payment for a quarter is made late. It is due one calendar month after the SG due date. The form calculates the super, admin and interest amounts payable.

Penalty number 2: An admin fee per employee

An automatic non-deductible admin fee payable of $20 per employee, per quarter.

Penalty number 3: Interest

This is charged at a nominal rate of 10% and is calculated from the beginning of the relevant quarter until the lodgement of the SGC statement. It is paid to the ATO as part of the SGC, then paid to the employee’s super accounts by the ATO as a concessional contribution. The interest cannot be reduced or waived. 

Penalty number 4: Requirement to pay super on all salaries and wages

Normally SG is payable on Ordinary Time Earnings (OTE), which doesn’t include overtime. When calculating the SG shortfall, the amount is calculated on all salary and wages.

Penalty number 5: Lost tax deduction on late super

No amount of the SGC statement payment, including the superannuation, is tax deductible under s26.95 of ITAA97. This will likely be the largest cost to a business when the super is paid only slightly late.

Penalty number 6: 200% “Part 7” Penalty

This is a further penalty that can be imposed by the ATO for late lodgement of an SGC statement. The default rate of the penalty is 200% of the SGC amount.

Penalty number 7: Director’s personal liability

The ATO may issue a Director Penalty Notice (DPN) for unpaid SGC amounts, making directors personally liable. If the SGC statement was lodged on time, the DPN can be negated by appointing an administrator within 21 days. If the SGC statement was lodged late, the only way to settle the DPN is by paying the amount in full. The ATO is able to estimate SG amounts and assess them to directors even after a company has been liquidated.

Penalty number 8: Possible criminal charges for directors

Since 2019, the Commissioner of Taxation has had the power to pursue criminal penalties for serious breaches of SG obligations, including up to 12 months imprisonment for directors.

Other considerations:

• Single Touch Payroll (STP) and electronic super reporting means the ATO has real time data on late super payments. There has been an increase in engagement by the ATO in the area.
• There is no minimum dollar amount the ATO will chase for SGC. They will fully pursue every dollar.
• Since there is no discretion under the law, it is irrelevant if the SG is owed to a sole director and shareholder.
• Prospective purchasers of businesses will likely look back at a number of years of super payments to ensure there are no unlodged SGC statements during the due diligence process.
• Employees are able to check their super balances more easily than ever. The ATO will investigate every single complaint they receive in relation to unpaid super.

When is super considered paid?

Super is considered paid when it is received in the employee’s super fund bank account. Some clearing houses advise employers to allow 10 business days, but this should be checked with the clearing house used.

Example

Assume SmallBus Pty Ltd has 10 employees and the wages paid in the March 2022 quarter were $250,000 with super accrued during the quarter of $25,000. SmallBus Pty Ltd makes the $25,000 payment in full on 27 April 2022, but the payment doesn’t reach the employee’s super funds until April 29. No SGC statement is lodged until 1 April 2023 after a letter is received from the ATO.

The non-negotiable cost of the late payment would be:

Admin fee                                            $200

Interest                                                $3,116

Lost tax deduction at 25%                  $6,250

Total                                                    $9,566

Additionally, the total penalty available to the ATO would be 200% or $19,132. Assume this is reduced by the ATO to 100% or $9,566.

Total cost of paying the super one day late: $19,132

On top of this, the directors could be personally liable for the SGC amount, even if SmallBus Pty Ltd were placed into liquidation. 

Tips for reducing SGC risk:

• Paying super monthly or together with each pay run will reduce the overall cost of any mistake at the end of a quarter
• Make payments well in advance of the due date
• Monitor the super payable account to ensure super accrued from payroll is matched to payments

Please do not hesitate to contact your Harris Black Team member should you require any assistance or further clarification.