I have the option of salary sacrificing. My annual income is 53k and will increase to 76k in March 2017.
I have a HECS debt of over 40k.
I am saving for a house and own my own car.
I am told that I can allocate a portion of my wage to be used on a visa card to be used for general expenses (on tax free dollars), which seemed great!
However, I have read that salary sacrificing can become complicated with HECS debt.
Can anyone clarify? Or do people have experience in a similar situation?
Thanks.
Depends in the amount your salary sacrifice is. I work for a qld benevolent institution which means huge salary sacrifice (~$15,000 or so). It bumped my salary up to a higher tax bracket due to the fbt that SS attracts. You should talk to the salary sacrifice people and coworkers about the impact. In my case the SS caused a $4,000 HECS repayment/debt/amount owing at the end of the financial year. Luckily I could offset/delay some of that by doing more work related study.
It turns out that to avoid HECS I should be making additional tax payment each week . or, as I have a mortgage, save that money in an offset account and then pay it out once my tax debt is calculated.
Salary sacrificing will not lower your income for the purposes of calculating how much HECS/HELP debt you have to repay.
It's not very complicated, just that you can't avoid repaying HECS/HELP debt by lowering your income by salary sacrificing to super. Also you can't use negative gearing and a few others.
I am saving for a house
Why not target the HECS debt first, get rid of it?
HECS debt is cheaper to roll over than mortgage. Also saving for a deposit is probably a more pressing financial concern than either paying off a cheap mortgage or HECS loan.
When I had a $15.9K salary package (health charity) available to me it just increased the amount of HELP loans I pay back meaning that it reduced the potential benefit to me from around $5k to $2k after the extra payments were made. It's still worth doing you just don't get as sweet of a deal.
Stuff paying the HECS debt. Just pay the minimum amount. It's always the best thing to do unless you can pay it off at once with disposable cash.
The ATO is much smarter than that. They are not going to let you get away with not paying your HECS debt regardless of how much you buy with salary sacrifice.
Agreed.
It's the ONLY interest free loan you'll ever get. Minimum repayments is the way to go.
Yeah, it wasn't really about whether I should pay off HECS, but more to do with people who have had similar situations and had problems during tax time with money owed due to incorrect HECS payments throughout the financial year etc. I couldn't care less about my HECS debt - the amount of money being paid in comparison to money being earned is not really noticeable.
the good thing about paying hecs off is that you get a 5% discount if you pay back over 500 dollars.
this 5% is ending at the end of this month as the government are removing the discount.
in a low interest environment who will give you a 5% return / discount for nothing.
end of the day its up to you and your financial circumstances.
Don't listen to rubbish that people tell you about salary sacrificing becoming complicated with HECS debt. Salary sacrificing will reduce the total tax you have to pay for the whole year…sure you may have a bigger tax debt than you expect because you've been paying less tax all year, but you have to pay off your HECS debt regardless of whether you salary sacrifice or not. The total tax you will pay to the government will still be less if you salary sacrifice
Thanks for the advice. I will be salary sacrificing, but I just had read a few things about HECS debt and ensuring that payments are increased throughout the year, so you aren't required to pay a shortfall come tax time.
Where did you read that?
My impression of salary sacrifice is that it reduces your taxable income - if it falls below the HECS/HELP threshold, then you shouldn't need to pay it.