Paying for a Masters: tax deduct full fees or pay off through Fee-HELP?

MissLouise on 16/03/2014 - 21:49

Hello,

Just looking into doing a Masters to further my skills in my field. The course costs $20,000.

I am trying to work out if there are any benefits between paying full fee then claiming the fees as part of a tax deduction (from what I can tell, this will reduce my taxable income??), or, whether I should pay via Fee-Help over a longer period of time (not sure if this will reduce my taxable income?).

The course will take approximately two years to complete part time while I work full time (Course will therefore run across three financial years).

Many thanks in advance for your response!

Financial

Comments

  • CleverCounter on 16/03/2014 - 22:26
    +2

    You can claim a deduction for your masters if it relates to how you produce income. But you will need to pay it upfront as you can't claim course fees using Fee-Help. Sometimes there are discounts for paying for a course upfront too which is a nice little bonus.

    Choosing between either option will depend on how much cash you have, your marginal tax rate and what you could do with the $20k for in the next 2 years (e.g. buy a house or start a business).

    If your tax rate is low because your working part time (e.g $18,200 p.a your tax rate is only 19%), you'll save roughly $4,000 on the full course. Not a lot of savings to sink that money over two years. Best use that cash to generate more cash!

    All the best

  • toffee on 16/03/2014 - 22:33

    Are you sure you can't claim the deduction when paying via FEE Help? I did, via my accountant and on his advice… the incurred costs rather than the actual repayment.

    That was a degree rather than Masters which I assume makes no difference.

    • jackojm on 14/04/2016 - 09:23

      fee help is not hecs

  • marquise on 16/03/2014 - 22:45

    Investigate when and what your repayments will be (as this depends on amount owing and income level). I tossed up last year when doing a single subject and it didn't really seem to save me any money. I opted to pay the single subject fee on my credit card and receive the points.
    Your circumstances may be different however.

  • thetownfool on 17/03/2014 - 00:27

    I chose to defer the cost of my Masters (around $25,000) to FEE-HELP and my accountant tax deducted it for me. Added a tonne to my HECS debt (or whatever it is called now) to pay off over time, but have had 2 years with $12,500 in deductions from this alone. No word from the tax office, pretty sure my accountant is on the ball. Honestly HELP is a low interest loan and from my point of view you'd be better off paying off other debts (car/home loans etc).

    As a side note I used to do my own taxes, but the first year I went to an accountant was the year I started my Masters, pretty much paid for the next 20 years of tax returns in one hit as I doubt I would've known to claim it otherwise.

    • jackojm on 14/04/2016 - 09:22

      worry

  • spal on 17/03/2014 - 10:07

    Tax deduction of self education expenses is independent of help repayments. If you meet one of the two tests for self education expenses then you are able to claim expenses incurred (note incurring is sufficient and payment is not relevant). Repayment of help debt itself is specifically exculded as a allowable deduction. So you can claim a deduction when you receive your fee invoice and payout your debt as per your ability.
    Why I know? I am doing my second year of part time masters and I got a private ruling issued for my circumstances by the tax office. I payoff the debt in full when it reaches the ATO and need to pay only 95% of my debt. Wife also finished masters. Same strategy. Also got a private ruling for her confirming the arrangement.
    Hope this helps. Best of luck with the studies.

  • Smulder on 17/03/2014 - 10:52

    See point 4.5 of this Document:

    "Can I claim my tuition fees as a tax deduction?
    You may be able to claim your tuition fees as a tax deduction, regardless of whether you used a FEE-HELP loan or paid up-front, if there was a direct connection between your studies and your work activities at the time you paid for your course."

  • MissLouise on 17/03/2014 - 17:53
    +1

    Thanks everyone for your replies, it has given me a few things to think about. It looks like I will need to do some specific calculations to work out which is the best option, although, I think I will need an accountant to help me with that!

    I like your suggestion marquise of paying through a credit card to collect the points! (If paying upfront turns out to be the best option!)

    • spal on 18/03/2014 - 04:29

      ATO will charge you additional fees for payments via credit card. BPay from savings account will not incur any charges. If you choose to pay fees directly to the institution using your credit card, you will get points. However, the fees payment is a lot sooner, and repayment of Help debt at Master's level gets you nearly 5% discount, which is better outcome than the credit card points. Therefore, I find taking on HELP debt and paying directly to the ATO works out better for me.

  • humilem servum tuum on 19/03/2014 - 12:10

    If I may err on the side of caution:

    In relation to self education expenses, you can't claim any expenses as self education expenses if:
    1. It has a general relationship with your current employment; or
    2. Enables you to get new employment.

    New employment AFAIK includes promotions. So if you undertake some sort of formal study to obtain a promotion or new job, those fees related to that formal study would not be allowed as a self education expense.

    http://www.ato.gov.au/Individuals/Income-and-deductions/Dedu…

    EDIT 1:
    If you want an example of this please refer to the Private Ruling below:

    http://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/101…

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